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Most people don't want to pay their taxes. One silver lining is the ability to generate credit card spending at an attractive rate.

I pay my taxes by credit card, so in this post I wanted to look at why. Credit card rewards can be more than offset by the fee if you use a credit card.

How much does it cost to pay taxes by credit card?

There are three services that you can use to pay federal taxes by credit card. This is approved by the IRS so it isn't a shady operation. The fees for credit card payments are included.

  • — 1.85%
  • — 1.87%
  • ACI Payments, Inc. — 1.98%

All of the services accept American Express, Mastercard, and Visa payment methods.

The above fees are used to pay federal income taxes. You may be able to pay state or local taxes with a credit card. The above services can't be used for the different fees.

It’s possible to pay taxes by credit card

What are the logistics of paying taxes by credit card?

Everyone has their own situation when it comes to taxes and credit limits. Some people with large tax bills may be in a position where they owe more than their credit limit. How does that happen?

You can make two credit card payments at the same time, according to the IRS. The limit seems to be two credit card payments per payment processor. You can make six payments by credit card with the services. You could make a number of payments per year by credit card if you pay taxes quarterly.

I and many others have been doing it that way for a long time. The IRS allows you to track payments based on your social security number. I have never had a problem with them not showing up on time.

When is paying taxes by credit card worth it?

Paying taxes by credit card is a no-brainer if you use a credit card to pay your taxes. A 1.85% convenience fee is a good price for generating credit card spending.

I want to emphasize a couple of points before I discuss the situation under which this makes sense.

  • You shouldn’t pay taxes by credit card if you’re not actually good at maximizing credit card rewards, and if you’re not earning rewards that exceed the cost of the fees; you’ll want at least a calculated return of 2%, and ideally more
  • You shouldn’t pay taxes by credit card if you can’t use credit cards responsibly, and are going to end up financing your tax payments using high credit card interest rates

It makes sense to pay your taxes by credit card, but you have to pay a fee. No specific order...

Credit cards with a great return on spending

Nowadays, the credit card landscape is very competitive and rewards structures have improved a lot. If you use one of the best cards, you should be able to get value that exceeds the fee.

There are a number of cards that can earn up to 2x points per dollar spent.

To me, 1.7 cents per point is the equivalent of a 4% return on spending. Most people would agree that this is a good way to get points for under a cent each. If I could, I would buy points at under one cent per point.

Personal and business cards that earn 2x points are included. Business cards should not be used for personal expenditures. I am trying to get a good idea of the return on spending offered by different cards.

If you use a good cash back card, you can get a 2% return on your spending. A 2% return on spending is probably not worth the hassle, but you can do better than that.

Turn tax payments into travel adventures

Credit card welcome bonuses require you to spend a certain amount within a certain period. If there is a huge bonus with a significant spending requirement, it may be more than you would normally spend.

Credit card spending can be generated if you pay taxes at a fee of 1.85- 1.98%.

Credit cards with spending or threshold bonuses

Specific threshold spending bonuses, which are particularly lucrative, are included in the cards with a generally lucrative return on everyday spending.

The World of Hyatt Credit Card has a sweet spot of $15,000 a year. You would earn 15,000 World of Hyatt points, a Category 1 free night award, and six World of Hyatt elite nights if you paid $15,000 for the card. That is a really good value.

You can get a free night award when you spend at least $15,000 on the business card of the hotelier. You would get a free night award at a property that costs up to 150,000 points if you spent $15,000. That is really amazing.

Redeem a free night award at the Waldorf Astoria Maldives

Credit cards with airline & hotel elite status opportunities

There are more ways to earn elite status in the airline and hotel loyalty programs.

You can get elite status through credit card spending if you earn enough Loyalty Points. If you spend $200,000 on the AAdvantage® Platinum Select® World Elite Mastercard® from American Airlines, you would earn the airline's top tier Executive Platinum.

Is it worth it to only earn through credit card spending? It's likely not. It can be worth it at the margins, at the rate of 1.85- 1.98%.

If you spend $40,000 on the card in a year, you'll get one rewards diamond status, which is a perk for hotels. An extra $740 would be paid if you spent $40,000 on taxes. You would get the following.

  • 120,000 IHG One Rewards points (the card earns 3x points)
  • A $100 statement credit and an additional 10,000 points (the card offers this when spending $20,000 per calendar year, plus making one additional purchase)
  • IHG One Rewards Diamond status

It has the potential to be worthwhile.

Earn American AAdvantage elite status with credit card spending

I don't recommend financing charges on your credit card if you have high interest rates. There are promotional low or no interest rate opportunities on credit cards. If you can finance these charges for a period of time, it will give you more time to spend on other things. Again, I would avoid this if I could, but I think it's worth acknowledging.

I have been using a credit card to pay my taxes for many years and find it to be a great value. I think it's a good idea to be able to generate credit card spending for a fee of less than 2%. It's an easy way to reach minimum spending, it's a great way to accumulate points for under one cent each, and it's also the easiest way to get elite status.

I usually use this opportunity to reach minimum spending requirements on cards, and my default is to use a card that earns 2x points.

Is it possible to pay taxes by credit card, and what is your strategy for choosing which card to use?