Should You Pay Taxes With a Credit Card to Get Points?
I ended up not owing any federal taxes this year thanks to making enough estimated tax payments in 2014, but I did owe about $2,000 in state taxes, which I can easily pay out of savings. But I also considered another option: paying the taxes owed on a credit card that offered reward points. This could be an easy way for someone who regularly pays off credit cards to rack up some points to put towards a future trip, right? Not exactly.
The IRS outsources credit card payment processing to a variety of different outfits that can charge up to 2.35 percent of the total payment due. The interest is likely not worth whatever points you’ll accumulate on a rewards card, and if you’re putting the taxes on a credit card simply because you don’t have enough money to pay with cash, you’re better off paying in an installment plan with the IRS, which generally offers a much lower interest rate than a credit card would, plus won’t impact your credit score.
But according to Brian Kelly, who runs a site focused on maximizing reward points for travel, there are a few instances when using a credit card to pay taxes can make sense: if you can write off the cost of the processing fee as a business expense; if you need to hit a spending threshold on your rewards card to get bonus points and those bonuses are worth more than fee, and if you have a cash back card that’ll reward you more than what the fee will be.
These instances won’t generally apply to the average rewards card user, and in the end, after calculating the fees, I decided it wasn’t worth it. But perhaps I’m missing something here. Have you charged your taxes to a credit card to get reward points?
Photo: Strange Luke