Paying Taxes with a Credit Card
Yes, I took that picture of the shark. No, I was not in the water with it (aquariums for the win), although I am proud to say I have snorkeled with sharks a couple of times. A shark picture seemed appropriate for a post about taxes and credit cards; they all are potentially scary, and they are frequently misunderstood.
So last month I put $24,130 of our personal taxes on a credit card. You read that right. The same person who tracked her family’s spending down to the penny last year, bought her kids second-hand toys for Christmas, and advocates super aggressive debt repayment just put tens of thousands of dollars of money she owed to the government onto a credit card!
How irresponsible and hypocritical! Only a moron would charge taxes to a credit card!
I thought so too, at first. But bear with me here while I explain myself.
I have to pay my taxes either way, right? There’s no getting around that unless I want to flee the country or go to jail, neither of which seem appealing right now. I always assumed sending in a check (or e-check) diligently every quarter was the only way to go, because there were all those little fees tacked on to paying taxes any other way.
But last year we started really doing the math on what we were saving by playing the credit card game, and it turned out to be enough to get our attention. So we ran some quick calculations on what it would cost to pay that one tax bill through Pay 1040 with our Capitol One card, and here it is:
$24,130 in taxes + $451.23 in fees (1.87%) for paying by credit card = $24,581.23
That “purchase” gave us 49,162 Cap One miles, which is $491.62 toward travel purchases.
Since we travel frequently, those miles are no trouble at all to spend. We paid off the card as soon as the purchase cleared.
The bottom line is that we made $40.39 – with no more effort than we previously exerted paying taxes by e-check.
I’m sure that $40 is not a ton of money to most of you reading this. But if I saw a $20 bill laying on the sidewalk, I’d absolutely stop to pick it up. And you probably would too, right? Money is money.
This would have been a much more lucrative endeavor if we had had a spending bonus to hit on that card (Cap One has recently had 50,000-mile bonuses on their personal cards and up to 200,000-mile bonuses on their business cards). Even without that icing on the cake, this still worked out in our favor.
I now have to admit that I was wrong to be judgey about people playing the credit card game with their taxes. Some of those people really know their stuff.
Please note: If you’re considering doing something similar and never have before, call your credit card company to make sure you have the available credit and to give them a heads up about the large incoming payment so it doesn’t get declined. I strongly recommend that you NEVER carry a balance on a credit card for any reason, and that you take the free course at Travel Miles 101 before you try any sort of credit card hacking.
None of this is intended as tax advice. Ask your CPA or lawyer if you have questions about your own taxes.
You can find info directly from the IRS about paying taxes with a card on the IRS website.