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Charging taxes to earn rewards? You can, but do the math first

Summary

Paying taxes with a credit card qualify as a purchase, which means you’ll earn rewards. However, the fees you’ll have to pay will most likely wipe out any value on those rewards. Do the math first.

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Is charging income taxes and property taxes for points a wise move?

Paying taxes with a credit card does qualify as a purchase, which means the transaction will likely earn you rewards.

However, you should do the math first. Any convenience or processing fees you’ll pay for charging taxes will probably wipe out any value on the rewards you’d earn.

Check out all the answers from our credit card experts.

Dear Cashing In,
Does the payment of property taxes or income taxes (federal or state) with a credit card qualify as a “purchase” for purposes of accumulating points? – Robert

Dear Robert,
In the world of credit card rewards, yours is a fair question – and an important one.

Charging taxes to rack up points? Do the math first

You can often use your credit card to pay income taxes or property taxes. They count as purchases, so you would receive the miles or points charged.

However, this move rarely makes sense, because you will almost always be charged a high fee for using a credit card for these expenses.

  • The IRS, for example, lists three card processors that can be used to pay federal taxes, with fees ranging between 1.87 and 1.99 percent.
  • If you use tax software, you might use other payment processors that charge 2 or 3 percent.
  • For example, TurboTax charges a 2.49 percent fee when you use a credit card to e-file your return.

See related:Pros and cons of paying taxes with a credit card

With local property taxes, your local government might allow you to pay with a credit card for a similar fee. If not, you can find any number of services online that will allow you to pay by credit, and the services send in the cash.

  • For example, a business called Plastiq does that and charges a flat 2.5 percent fee.
  • The company says: “The good news is that your credit card rewards and other benefits often offset the fee.”

That is probably not quite true, since it is tough to earn 2.5 percent or more in credit card rewards.

See related:Plastiq, Tio: Pros, cons of charging your bills through an online service

The highest flat-rate cash back cards give you 2 percent back. That means your fees are probably going to be higher than your rewards.

  • That might be OK if you are trying to meet a minimum spend requirement on a rewards card, or if you are trying to meet a threshold number of points or miles for a certain reward redemption.
  • But if you are just trying to accumulate miles or points, the fees you will pay probably wipe out the value of the rewards.

That means paying taxes by credit card is not usually a good deal. You can do it – but that doesn’t mean you should.

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Published: October 1, 2018

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