Paying taxes with a rewards credit card can earn you thousands of points - here are the best options

pay taxes credit card

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  • Paying taxes with a credit card will incur an extra fee of at least 1.87%, but it could be worth it if you're looking to boost your rewards balance for upcoming travel or another redemption.
  • Some of the best cards to use for paying taxes are the Blue Business® Plus Credit Card from American Express, the Chase Freedom Unlimited, and the Citi® Double Cash Card.
  • If you just signed up for a new card and need to meet the spending requirement for the welcome bonus, using that card to pay your taxes could also make sense.
  • Keep in mind that rewards credit cards come with high interest rates, so if you can't pay your balance in full you're better off setting up a payment plan with the IRS and investigating other payment options.

Paying taxes might not be fun, but it can be a great opportunity to significantly boost your miles, points, or cash-back balance - or to easily meet the minimum spending requirement for a new credit card welcome offer.

If you want to use the upcoming tax season as an opportunity to earn extra rewards, here's a look at the best cards to consider paying with - along with information on how to pay with a card online.Advertisement

Keep in mind that we're focusing on the rewards and perks that make these credit cards great options, not things like interest rates and late fees, which will far outweigh the value of any points or miles. It's important to practice financial discipline when using credit cards by paying your balances in full each month, making payments on time, and only spending what you can afford to pay back.

How to pay taxes with a credit card

Paying taxes with a credit card is almost never free - tax collection agencies have to pay a percentage fee to the credit card network, and you'll typically see that fee passed on to you along with some kind of handling charge.

For federal taxes, the IRS has a list of payment websites authorized to collect credit and debit card payments on behalf of the IRS. Pay1040.com has the lowest rates for credit card transactions - 1.87% (with a minimum fee of $2.59). That's the option I use for my quarterly tax payments; paying with credit card allows me to earn more than 40,000 extra points each year.

For state or local taxes (like property taxes), check to see whether your tax agency accepts credit card payments, and if so, what their processing fees are. If they don't accept credit cards or their rates are high, check out Plastiq - a bill-paying service that lets you pay almost any merchant with a card for a 2.5% fee.

When is it worth paying taxes with a credit card?

The rewards are worth more than the fee you'll pay

In order to make paying taxes with a credit card worth it, you need more than just a low-fee way to make payments; you also need to use a credit card that will earn you valuable-enough rewards.
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The cards listed below, such as the Chase Freedom Unlimited, and the Blue Business Plus card from Amex, offer a high return on your spending - high enough that it should put you ahead even when you factor in the surcharge of at least 1.87% for paying taxes with a card.

You want to earn a credit card welcome bonus

Another reason to consider paying your taxes with a credit card is if you just applied for a new rewards credit card and you need to meet the minimum spending requirement to earn the welcome bonus. Paying your taxes with a credit card can also be an easy way to meet the spending requirements for credit card welcome bonuses that get you a large sum of points or miles.For example, the Ink Business Preferred Credit Card offers 80,000 bonus Ultimate Rewards points after you spend $5,000 on purchases in the first three months after opening the card, and the Southwest Rapid Rewards Performance Business Credit Card offers 70,000 bonus Rapid Rewards points after you make $5,000 in purchases within the first three months.Advertisement

If you have a significant tax bill, paying your taxes with one of these cards could allow you to knock out most - or all - of the minimum spending requirement.

Read more: The best credit card welcome bonuses available now

You're working toward a benefit like the Companion Pass

If you're a Southwest Airlines flyer, a Southwest credit card can also be a good option for large purchases like tax payments. That's because points earned from a Rapid Rewards credit card - including the sign-up offer - count towards qualification for the Southwest Companion Pass, which allows you to bring a designated companion along on any Southwest ticket - whether booked with cash or with points. You'll need 125,000 qualifying points to earn the Companion Pass, which will be valid until December 31 of the following calendar year.Advertisement

Similarly, some rewards credit cards offer benefits like a free hotel reward night if you meet a spending requirement over the course of a year, so paying your taxes with these cards can help you get there:

The best credit cards for paying taxes in 2020:

Here's more info about some of the best cards to pay your tax bill and earn rewards more valuable than the processing fees.

Blue Business Plus card from American Express

The Blue Business Plus card has no annual fee and offers 2x Membership Rewards points for every dollar spent, up to $50,000 in purchases per year (then 1x). Since you can transfer Membership Rewards points to more than 20 different airlines and hotels, paying your taxes with this card gets you a lot of flexibility in how you use your rewards. This is a business card, so you need to qualify as small business owner or a freelancer.Advertisement

Click here to learn more about the Blue Business Plus card »

Citi Double Cash card

The Citi Double Cash is a personal card that earns 2% cash back on all purchases (1% when you buy, 1% when you pay your bill). While this alone makes paying your federal taxes profitable, you can get even more value out of this card by transferring your cash back to a card that earns Citi ThankYou Points (like the Citi Premier℠ Card or Citi Prestige® Card) at a rate of $1 to 100 points. That means you're effectively earning 2 ThankYou Points per dollar spent on the Citi Double Cash card.

Click here to learn more about the Citi Double Cash card »Advertisement

Chase Freedom Unlimited or the Chase Ink Business Unlimited

If you're a fan of Chase Ultimate Rewards points, either the Chase Freedom Unlimited personal credit card or the Chase Ink Business Unlimited for small business are great options for earning hefty rewards. Both cards have no annual fee and earn 1.5% cash back on every dollar spent.

Similar to the option with the Citi Double Cash, if you have an Ultimate Rewards-earning credit card like the Chase Sapphire Preferred Card, you can turn that cash back into Ultimate Rewards points (effectively earning 1.5 Ultimate Rewards points per dollar spent) and then transfer the points you earned from your tax payments to the airline of your choice - or redeem them directly for travel through the Chase travel portal at a fixed value of 1.25-1.5 cents per point.Personal credit card: Click here to learn more about the Chase Freedom Unlimited »Advertisement

For small businesses: Click here to learn more about the Ink Business Unlimited »

An important reminder

Although using a credit card is a great way to earn points while paying your taxes, it's not the best option if you aren't able to pay your tax bill in full. The interest rates on rewards-earning credit cards are many times higher than a payment plan with the IRS or your state or local tax authority.

So if you can't pay off your bill immediately, talk to the agency about setting up a payment plan (you can still use your credit card to make payments toward that), and see a tax advisor about how to avoid a similar situation in the future.Advertisement

Click here to learn more about the best rewards credit cards of 2020 »

Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.

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Please note: While the offers mentioned above are accurate at the time of publication, they're subject to change at any time and may have changed, or may no longer be available.

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