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Updated Jan 2022 to reflect that Pay1040 decreased their fee from 1.99% to 1.87%. 

Should you pay taxes with a credit card?

There is one credit card that I would pay my taxes on (and advise you to) without blinking an eye.

If you are in a cash crunch, you should avoid travel rewards credit cards until you are caught up. Here are our favorite credit cards for Intro 0% APR offers and for balance transfer offers

What in the world is Dave on about? There are FEES when you pay taxes with a credit card!!!!

That’s true. 

But hear me out. And first, I must clarify that for everything I’m going to write in this article, I am making the assumption that you have the funds to simply mail the IRS a check and would prefer to pay, effectively, less if you could. If you cannot repay the credit card in full when the statement is due, then do not continue reading. Consult your tax advisor or financial planner in that case.

The “can’t lose” profit paying taxes

You can pay tax using a credit card with a 1.87% fee at PayUSATax. With the Citi Double Cash credit card, you earn 2% cash back (1% when you spend and 1% when you pay the bill).

So, you will profit 0.13% no matter what. The absolute worst case is that for a $10,000 tax bill, you make $13.

I know, that doesn’t sound like much – and it’s not – but it’s the optionality of the Citi Double Cash credit card when combined with a Citi Premier or Prestige card that makes this so appealing. The unique ability of the Citi Double Cash to earn 2% in cash back off the bat with the option to convert those, 1 to 1, to Citi ThankYou points later is what makes this so attractive.

I wrote this article last year about the Citi Trifecta (or even Quadfecta). It discusses how you can earn 2% cash on the Double Cash but then opt to convert to ThankYou points later.

Cash Now or Points Later

This is so key right now. If we aren’t “back to normal” in 3-6 months, you may want the cash. If you paid $50,000 in tax liabilities, you paid $935 in fees and earned $1,000 in cash back. You’re net positive $65.

United 787-10 (Newark - LA)
United 787-10 Business Class (Newark to LA)

You have $1,000 in your cash back account which you can get deposited straight into your bank account, but there’s no rush.

Maybe in a year you want to book a round trip from New York (Newark) to Los Angeles in Business Class. If you can find the award space, you could book that for just 25,000 Turkish miles (total, round trip). Those miles can be transferred 1:1 from ThankYou points.

So, you transfer $250 worth of points into ThankYou points, becoming 25,000 ThankYou points. You transfer those to Turkish and book your flights. (Note: there is a delay of 1-2 days to transfer ThankYou to Turkish so in reality you’d probably want to transfer once you had a hunch you could find flights that worked).

You just got a flight worth $800 ++ and have $750 left over from your $1,000.

You aren’t buying points – you’re acquiring optionality on them.

That’s my stock market brain comparing this idea to buying options, although in this case you are being paid 0.13% to TAKE them. You don’t have to pay a premium like you would for a stock option. Even if you didn’t have (or keep) a Citi Premier or Prestige to be able to transfer down the road, your worst case is a 0.04% gain.

Citi Premier
Get 60,000 Citi ThankYou points when you spend $4,000 in 3 months. Using Turkish as a transfer partner, this could be worth 2 round trip domestic flights in Business Class or 1 flight to Europe in Business Class! Get This Offer

I got "in the game" in 2003 and since then I've collected literally millions and millions of frequent flyer miles and hotel points. I've flown around the world in first class seats that would cost $29,000 using frequent flyer miles and a few bucks in tax. And I've stayed in some of the finest hotels - all for free! A few years ago I realized many of my friends actually thought I was paying for these!! So I started sharing my tips. It's long been a passion, but when I hosted a session on Miles and Points at this year's South by Southwest festival, my love of the game intensified and this blog was born.

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