Welcome to a regular feature on the Renés Points blog. This blog series covers in a “rookie” way either a Delta or travel related theme and attempts to break down to a basic level each topic. You can read up on all the previous posts HERE. Now on to this featured topic.
The least wonderful time of the year (tax season) can actually be quite helpful. Why? Paying taxes with credit cards is a great way to earn points and meet minimum spend thresholds.
(Disclaimer: I am not giving tax advice nor am I an accountant. Please consult a professional tax advisor for your personal and/or business tax situation)
Let’s say you hold the Delta Amex Platinum or Reserve card(s). You probably want to spend $25,000 (Platinum cards) or $30,000 (Reserve cards) to meet your Status Boost threshold and earn bonus MQM.
The IRS lets you pay many types of taxes for a small credit card processing fee. Fees generally hover just below 2% of whatever tax amount you’re paying. So using a Delta Reserve Amex and PayUSATtax (1.96% service charge) as an example:
- You pay $30,000 in taxes and it costs you on your Delta Reserve card $588 in fees
- You get a total of 30,588 SkyMiles worth at least $305
- The net result is your cost is $283 (if you value SkyMiles at one cent each).
That comes out to about 1.9 CPM. ($283 ÷ 15,000 MQM). That’s pretty darn good for a “mileage run” — let alone sitting at your desk and paying your taxes.
“You get your MQMs for a really cheap net cost with time really not a factor since it only takes a few clicks from your computer,” René said. “This is why I add this into my mix because; because even with the cost included in the transaction, it is so fast and simple.” He pays taxes to achieve nearly two status boosts each year on his Delta Business Reserve American Express card.
That’s just for using Delta cards to hit their bonus MQM. (Maybe there’s another loyalty program’s card spending thresholds you need to meet). If that doesn’t matter to you, consider a good cash back card. Business-wise, the American Express Blue Business Cash Card or Capital One Spark Business Card both of which earn 2% back on purchases. (The Blue Business Cash caps the benefit at $50,000 in spending per calendar year. The Spark card has no such restrictions.) Those not only cover the processing fees from paying your taxes with credit cards but you also get money back on the taxes themselves.
On the personal side, the Citi Double Cash Card earns 2% cashback (learn more about cashback cards). Using a 1.5% cashback card probably isn’t advantageous until there’s a welcome bonus offer you need to reach very quickly.
Or maybe there’s a new card you just received — and want a quick, easy way to reach the minimum spend requirement. Need a way to hit the Business Platinum from American Express‘ new welcome bonus? Want to reach the Platinum Card from American Express or American Express Gold Cards‘ or Chase Sapphire Preferred‘s bonuses? Taxes are a good, fast way to help.
Don’t forget to use a credit card to pay your tax preparer’s fees, too!
Should You Overpay Your Taxes?
I know some people intentionally overpay their taxes so they can hit minimum spend requirements. They simply receive a refund for whatever applicable overypayment was made.
I generally can’t afford to float tens of thousands of dollars, so I’ve never overpaid taxes to get credit card rewards. Plus, I don’t want to loan the government more money than I already do each year…
But if you’re comfortable with that kind of “investment” (and can afford to overpay), then knock yourself out and enjoy.
Again, consult a tax professional.
Paying taxes with a credit card is a great method to chip away at minimum spending thresholds. But make sure you use a card that’s advantageous for your needs. Also also be aware of the fees paying taxes with credit cards can generate.
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