With changes in the tax laws this year affecting refunds and potentially kicking you from a refund to a payment, it’s time to try and figure out a few ways to minimize the pain. So how about using your credit card to pay the IRS?
How to Make Money by Paying Taxes
Sadly, tax time is in six more weeks. Screw that groundhog. Photo Credit: Creative Commons
Remember, nothing on here is tax advice. I know my miles and points programs, but you should use a real accountant for your IRS inquiries.
Nobody likes doing their taxes and, certainly, nobody likes paying taxes. But if you have to pay, you might as well make a bit of money while doing so.
You may not know this, but you can actually pay your federal taxes, including estimates, with a credit card.* If you have a credit card whose rewards are greater than the fee (See below for three options.), you’ll come out ahead. There are three major companies that the IRS partners with to process secure payments, and all of them charge a fee. The fee may be tax-deductible.
Pay 1040: 1.87% fee, minimum $2.59. Accepts Visa, MC, Discover and American Express
Pay USA Tax: 1.96% fee, minimum $2.69. Accepts Visa, MC, Discover and American Express
Official Payments: 1.99% fee, $2.50 minimum. Accepts Visa, MC, Discover and American Express
Beginner’s Hint: You can also pay with a debit card for a $2-3 flat fee, but strong debit card rewards programs are hard to find.
The fee chart for paying tax bills online at Pay 1040
You’re not going to make a lot of money paying taxes. It’s kind of a good-news-bad-news situation: The more you owe, the more you can take advantage of credit card rewards when paying. It’s about the psychic joy of getting a little something back when you get to April 15. As of 2014, the latest year for which I could find data, the average taxpayer among the 20% or so who owe money will be paying a bill for about $6,000.
The sites are simple to use and self-guided. You’ll input your personal info, choose what kind of taxes you are paying and they’ll charge you instantly.
Using The Right Credit Card – Three Options
Photo Credit: Creative Commons
Given that the various payment agencies are basically the same, I’d just go with the cheapest one. In this case, that’s Pay 1040. They’ll charge you 1.87% to pay either your annual federal taxes or quarterly estimates (Most of these companies limit you to two payments per calendar quarter, although you may be able to call them and get an agent who is willing to go over the limit for you.).
There are many cards available that will make you money, but here are a few options that I like. If there’s one that you want, you have plenty of time to do so before tax day and, if the card has a sign-up bonus, anything you spend toward taxes will, of course, count toward that minimum.
Citi Double Cash
The simplest, no-muss no-fuss solution is the Citi Double Cash card. It pays you a flat 2% on every purchase, no matter where you make that purchase. No annual fee, no huge sign-up bonus, no bonus categories. It’s the card for that’s probably best for the 99% of the population that simply doesn’t want to have to worry about every bonus category.
Your profit: You’ll make 0.13% (2% reward minus the 1.87% fee) on the transaction. For a $6,000 bill, the average person will make a whopping $7.80.
Barclaycard Arrival Plus World Elite Mastercard
Next up is the Barclaycard Arrival Plus World Elite Mastercard. It tells you that you earn “double miles,” but they don’t actually give you miles. Rather, you get money toward a travel purchase (and their definition of “travel” is pretty broad, not just airlines and hotels, but it doesn’t matter, since the “miles” never expire. If you don’t have a travel purchase this month, you may next month.). The use of the term “miles” is simply a gimmick. So it’s a 2% card. Here’s where it gets interesting:
- New cardholders get a $700 statement after spending $5,000 on purchases in the first 90 days.
- A 5% rebate on any miles that you use, meaning that your reward rate is actually slightly above 2%.
- The annual fee is waived for the first year. You have 12 months to decide what you want to do with the card.
Your profit: You’ll make 0.13% plus a bit extra. For a $6,000 bill, you’ll earn $8.19 from the bill, plus an additional $735 for the sign-up bonus. The $743.19 bonus includes the 5% kicker.
Discover It Miles
But the biggest potential winner is the Discover It Miles card. I’ve praised Discover on more than one occasion, for reasons ranging from its cash back shopping bonuses to lack of nuisance fees to all-around excellent customer service. But what separates the Discover Miles card in this transaction is the big return that you will get. This is a card worth having even if you don’t use it to pay taxes.
Like the Barclaycard above, the It Miles card pays you in “miles” that are really cash. You’ll earn a flat 1.5% rebate that can be used for anything, not just travel.
The good stuff: At the end of the first year, Discover will double any and all points that you earn throughout the year, meaning that, for the first 365 days, it’s actually a 3% rebate card, not just a 1.5% card. I can’t find a better flat rate return on any card out there, particularly for one without an annual fee. They’ll also double any bonus miles you get so, if you shop through the Discover portal and earn points there, you’ll get those doubled, as well.
Your cash back will be 1.13% (3% minus the 1.87% fee), or a whopping $67.80, today’s winner.
The Bottom Line: Get rich paying taxes? Unlikely. But getting just a little bit of “revenge” for your bill? Priceless.
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And finally, you can apply for credit cards through the Credit Cards for Charity link above. All card proceeds are donated to charity, so please do well by doing good!
