While some people look forward to tax time because they are going to get a refund, others dread it because they know that it just means a big tax bill. What if you could get something back for paying that tax bill? Many travel hackers do just that! Tax time can be a great way to earn points especially if you are trying to meet a big SUB. But wait, it costs money to use a credit card right? Well yes, but don’t let fees like that scare you away from a great points earning opportunity. First we’ll cover how to pay taxes with a credit card and then we’ll cover why you should.
How to pay taxes by credit card
This first step is really easy. Once you get your taxes done and you can see how much you owe, don’t write a check. Instead, go to https://www.irs.gov/payments/pay-your-taxes-by-debit-or-credit-card There you’ll see that you have the following options:
Note that we included the link to the landing page on the IRS website and showed you what it looks like at the time that this was written instead of just saying to go to payUSAtax? This was done because there is no telling what other options may present themselves in the future. Likewise, these fees may chance. So while it makes sense to use payUSAtax this year, you don’t want to just assume that will always be the best way to go.
We personally use payUSAtax and the process is incredibly easy. Takes not even five minutes. Type in all of your information and the amount that you are paying. Then enter in your credit card information. Once you click submit, you’ll get a confirmation like this:
On this same page is a confirmation code. Be sure to save this page for your records so that you can prove that you paid. And that’s it, taxes are paid. If you run into a problem using your credit card for some reason, you can also pay through Paypal. Just make sure that the card you want to use is in your Paypal account and that you select same.
Please also note that while we are focusing on paying your yearly tax bill, this will also work for estimated taxes.
Why should you pay your taxes by a credit card with those fees?
First let’s look at these fees. For purposes of this discussion, we will assume that the tax bill is an even $10,000. The math here is easy. If you use a credit card and payUSAtax, your fees will total $182. The goal here is to get more than $182 worth of value. If you can do that, you’re coming out ahead. if you can’t, you’re wasting your time and money. Let’s consider a few different scenarios.
Chase Freedom Unlimited
This card 1.5x for all purchases. There is no annual fee. Let’s assume you’ve had the card for a while so there’s no SUB you need to worry about. We value Ultimate Rewards points at 2 cents per point (cpp). So let’s do the math. $10,000 x 1.5 = 15,000 points. We then take those points and multiply them by 0.02 (which is how we express 2cpp). 15,000 x 0.02 = 300 or in this case, $300. Since $300 is worth more than $182, you are coming out ahead by $128. This of course assumes that you get 2cpp in value for those points. While this is pretty easy with Hyatt hotels and some international business class flights, it will take work on your part so you should make sure that you can get that value. This is hardly exciting of course so let’s see if we can do better.
For more information on this card, see this course.
Chase Ink Business Preferred
This card gets 1x for all purchases but it has a SUB of 100,000 for spending $8,000 within 3 months. There’s an annual fee of $95. This is a great card to use for tax purposes because a lot of people cannot meet that SUB. Card with high SUBs like this are perfect for big tax bills. Let’s do the math.
At 10,000, 1x will result in 10,000 points. But you’ll also get the SUB so that makes it $110,000 points. Those points are worth $2,200. Adding in the annual fee of $95 plus the $182 to use the card gives you a total of $277. The value of those points are worth almost 10 times the fees associated with getting those points. Now that’s a no brainer!
For more information on this card, see this course.
Chase Ink Business Unlimited
This card gets 1.5x for all purchases. it has a SUB of 75,000 (sometimes 90,000) for spending $6.000 in 3 months. There’s no annual fee. This is another great card for those of you that already have the CIBP. Since the CIBP has a higher SUB, we suggest focusing on that card first. Just like the CFU, you’ll get 15,000 in points for the spending. Add that to the 75,000 points for the SUB and you’ll get 90,000 points. Those points are worth $1,800. Subtract the fee of $182 and you’re coming out ahead by $1,618. While that’s still a sweet deal, you can see how the CIPB provides more value even though there’s an annual fee.
Note that you “could” swap out the Chase Ink Business Cash instead but we would only recommend that if you already have the other two Inks. The Chase Ink Business Cash has the same SUB but will only earn 1x so you’ll get less points.
For more information on this card, see this course.
What if you aren’t working on a SUB?
Some travel hackers believe that you should ALWAYS be working on a SUB. For those that are more advanced, this makes sense but for the beginner or more casual travel hackers, having dozens upon dozens of cards doesn’t make sense. While we suggest timing out your credit card applications to use for tax time, there may be some people that will be facing a tax bill and do not have a SUB to meet. We’ve already discussed the CFU and that’s kind of boring. Are there other options? Of course!
There are a number of cards that have an extra spending benefit beyond the SUB. Two examples are the Hyatt cards, personal and business. The personal card earns 2 elite night credits for every $5,000 spent. So using our hypothetical $10,000 tax bill, you’d earn 4 elite nights. You’ll also earn an extra free night certificate for spending $15,000 a year on the card. So while the 1x on the card will yield just a little bit of gain, the elite night credits could be what you need to put you over to your next status. That status plus the free night credit has value. Whether you value you that more than what you’d get with a 1.5x or 2x card is for you to determine. With the Hyatt Business card, every $10K spend in a calendar year will get you 5 tier qualifying night credits. In additional to status, Hyatt also provides milestone rewards so the spending may also put you to the next milestone reward.
Note that we are not suggesting that you apply for these cards to use for your taxes. This analysis is for those that do not want to apply for a new card. These cards are just examples. You’ll have to look at your cards to see what makes sense. One work of caution, some cards have increased bonuses for the categories you spend the most in. However, these categories are specifically defined and there will be some expenses such as taxes that will fall outside of these categories. Therefore, do not assume that your biggest expense on that card will trigger that bonus.
Two-player mode
If you’re in two-player mode and your tax bill is large enough, you can actually get two SUBs at the same time. You could of course do this if you’re in one-player mode by spacing out your card applications the right way, but let’s try to keep this simple. This is what we did this year. One of us got one card and the other got a different card. P1 paid a portion of the bill and P2 will pay another portion. Note that you can only use two credit cards regardless of whether you’re in two-player mode or note. For more information on this policy, see this link https://www.irs.gov/payments/frequency-limit-table-by-type-of-tax-payment
This also prevents you from paying your tax bill with a large stack of gift cards (although the fee for that wouldn’t make sense anyway).
Conclusion
The cards listed above are just a few examples to demonstrate how to perform this analysis. While the two business cards would be our top suggestions, you could use any card as long as the math makes sense. The amount of the tax bill is also irrelevant as the math is the same regardless of the tax bill. For more help on this topic or any other travel hacking related issue, join our Facebook group.