- As a freelancer, I have to pay quarterly taxes.
- While I don’t exactly enjoy paying taxes, it’s is a great opportunity to earn points and miles. I earn more than 40,000 points per year paying my taxes with a rewards credit card.
- Pick a card that earns a high return on non-bonus spending, like the Chase Freedom Unlimited, or consider charging your taxes to a card you just opened so you can work toward a sign-up bonus.
- While there can be fees associated with paying taxes with a credit card, sometimes the points earned are well worth it.
- Read more personal finance coverage.
For most freelancers and small business owners, paying taxes is a dreaded but necessary part of life. However, I actually look forward to my tax filings, because it’s a great opportunity to earn credit card rewards. It’s one of the the easiest way I earn points and miles, and since I’m paying taxes for my business, I regularly earn more than 40,000 points a year.
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
The IRS works with three official payment processors; the one I use is Pay1040.com because it has the lowest processing fee: 1.87% (minimum $US2.59).
Paying taxes with Pay1040.com is simple: You just select the tax form you’re filing, then enter your personal information and credit card information. It takes just a couple of minutes, and the IRS will receive your payment immediately.
Tax payments through Pay1040.com are processed as purchases, not cash advances, so you’re guaranteed to receive rewards (and don’t have to worry about paying any extra fees to your credit card company). And if you’re filing business taxes, you can even deduct the processing fee as a business expense!
Choosing the right credit card for paying your taxes
The hardest part of the process might be deciding which credit card to use. You’ll want to choose a card that gives you rewards worth more than the processing fee.
Although you would come out ahead even with a card that earns 2% cash back, there are several cards that could potentially get you much more value:
- The Blue Business® Plus Credit Card from American Express – This card has no annual fee and earns 2x Membership Rewards points for every dollar spent, up to $US50,000 in purchases per year (then 1x).
- The Ink Business Unlimited Credit Card and Chase Freedom Unlimited both earn 1.5% cash back on all purchases, with no limit on the rewards you can earn and no annual fee. This cash back can be transferred to a card that earns Chase Ultimate Rewards points (like the Chase Sapphire Preferred Card), so you’re effectively earning 1.5 Ultimate Rewards points for every dollar spent.
- Citi® Double Cash Card – It earns 2% cash back on all purchases (1% when you buy, 1% when you pay your bill), and your cash back can be transferred to a card that earns Citi ThankYou Points (like the Citi Premier℠ Card or Citi Prestige® Card) at a rate of $US1.00=100 points. So it effectively earns 2 ThankYou Points per dollar spent.
- The Amtrak Guest Rewards cards from Bank of America earn 1 Amtrak point per dollar spent; points are worth up to 2.89 cents each on Amtrak travel (though they’re worth less on Acela high-speed trains, and can’t be used on the cheapest Saver fares).
Charge your taxes to a credit card to earn a sign-up bonus and other spending-related perks
If you have a large tax bill, paying your taxes with a credit card can also be an easy way to hit the minimum spending threshold 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 when you spend $US5,000 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 $US5,000 in purchases within the first three months.
Paying taxes with your credit card can also help you achieve bonuses on certain credit cards – for example, the World of Hyatt Credit Card offers a free night award when you spend $US15,000 within an anniversary year, and the Delta Reserve® Credit Card from American Express grants 15,000 bonus miles and 15,000 Medallion Qualifying Miles when you spend $US30,000 in purchases within a cardmembership year, and again when you reach $US60,000 in purchases within the same period. (Starting January 30, 2020, you won’t receive the bonus miles – just the Medallion Qualifying Miles).
If you’re a Southwest Airlines fan, paying your taxes through Pay1040.com can help you earn the coveted Companion Pass (which as of January 2020 requires earning 125,000 points in a calendar year) – that’s because points earned from purchases on Southwest credit cards count toward the Companion Pass.
An important reminder
Although paying taxes with a credit card is a great way to earn points, it’s rarely the best option for financing if you’re not able to pay your tax bill in full. The interest rate charged on rewards-earning credit cards is many times higher than a payment plan with the IRS. So if you can’t pay off your bill immediately, talk to the IRS about setting up a payment plan (and then you can make payments with your credit card through Pay1040), and then see a tax advisor about how to avoid a similar situation in the future.