Paying taxes with credit card?

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Derivative
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Paying taxes with credit card?

Post by Derivative » Tue Dec 05, 2017 3:36 pm

Do you guys pay your taxes with credit card? I see there is about a 1.87% fee with paying taxes with credit card, but some credit cards have a 2% reward percentage (so you would earn 0.13%). Is there a good card to pay taxes with since the credit card fees seem to be pretty low compared with cash back rewards?

Are there other things that most people miss out using a credit card on for cash back rewards?

livesoft
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Re: Paying taxes with credit card?

Post by livesoft » Tue Dec 05, 2017 3:40 pm

Nope don't pay taxes with a credit card.

I did pay large college tuition bills with a credit card until the university instituted a 2% fee.

Added: Instead of paying taxes with credit card, I overpay taxes and get a nice bonus for doing so. It's not like the old days where a so-called "interest-free loan" is made to the government. Instead, one can make an extra 10% annuallized on their refund if properly done. That's guaranteed and no risk. You can't get that in a CD nowadays.
Last edited by livesoft on Tue Dec 05, 2017 3:45 pm, edited 1 time in total.
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Re: Paying taxes with credit card?

Post by brad.clarkston » Tue Dec 05, 2017 3:41 pm

Never.

cal91
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Re: Paying taxes with credit card?

Post by cal91 » Tue Dec 05, 2017 4:01 pm

livesoft wrote:
Tue Dec 05, 2017 3:40 pm
Nope don't pay taxes with a credit card.

I did pay large college tuition bills with a credit card until the university instituted a 2% fee.

Added: Instead of paying taxes with credit card, I overpay taxes and get a nice bonus for doing so. It's not like the old days where a so-called "interest-free loan" is made to the government. Instead, one can make an extra 10% annuallized on their refund if properly done. That's guaranteed and no risk. You can't get that in a CD nowadays.
This is the first I have heard of this. How can I learn to "properly" overpay my taxes? Thanks in advance

knightrider
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Re: Paying taxes with credit card?

Post by knightrider » Tue Dec 05, 2017 4:12 pm

Yes I pay my estimated taxes here:

https://www.officialpayments.com/index.jsp

I only do it to meet the minimum spend on my credit cards to get the sign up bonus.

dbr
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Re: Paying taxes with credit card?

Post by dbr » Tue Dec 05, 2017 4:18 pm

Sure, you can use tax payments for bonus spend on a credit card. We are talking about pulling down 100,000 Amex or 100,000 AA points or 100,000 CSR points for putting a few thousand dollars on the card at 2% or whatever. Those big card offers have to be taken when they are/were available and might not be seen again for some time.

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Re: Paying taxes with credit card?

Post by flamesabers » Tue Dec 05, 2017 4:20 pm

Derivative wrote:
Tue Dec 05, 2017 3:36 pm
Do you guys pay your taxes with credit card?
I don't, in part because of the nagging concern it will get coded as a cash advance. Plus, I try to break-even versus having to pay in a lot at tax time.

snowox
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Re: Paying taxes with credit card?

Post by snowox » Tue Dec 05, 2017 5:33 pm

Nope but wish I could. Our little town doesn't even offer it.

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Re: Paying taxes with credit card?

Post by snowox » Tue Dec 05, 2017 5:43 pm

livesoft wrote:
Tue Dec 05, 2017 3:40 pm
Nope don't pay taxes with a credit card.

I did pay large college tuition bills with a credit card until the university instituted a 2% fee.

Added: Instead of paying taxes with credit card, I overpay taxes and get a nice bonus for doing so. It's not like the old days where a so-called "interest-free loan" is made to the government. Instead, one can make an extra 10% annuallized on their refund if properly done. That's guaranteed and no risk. You can't get that in a CD nowadays.

can you go a bit more in depth on the tax thing?

livesoft
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Re: Paying taxes with credit card?

Post by livesoft » Tue Dec 05, 2017 5:44 pm

cal91 wrote:
Tue Dec 05, 2017 4:01 pm
This is the first I have heard of this. How can I learn to "properly" overpay my taxes? Thanks in advance
You probably have heard of this.

0. Use cashback credit card to buy tax software that gives a bonus on your refund. In past bonus has been 10%, but I see now 5%.

1. Run tax software to see your expected tax liability.

2. On last paycheck of year, make sure you exceed withholding for tax liability to make sure you get a refund.

3. File and get refund. Follow instructions for getting the bonus.

4. Bonus arrives before end of June. So you "loaned" government money from end-of-December to June, say 6 months: effective yield about 10%.
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Re: Paying taxes with credit card?

Post by sunny_socal » Tue Dec 05, 2017 6:19 pm

livesoft wrote:
Tue Dec 05, 2017 5:44 pm
cal91 wrote:
Tue Dec 05, 2017 4:01 pm
This is the first I have heard of this. How can I learn to "properly" overpay my taxes? Thanks in advance
You probably have heard of this.

0. Use cashback credit card to buy tax software that gives a bonus on your refund. In past bonus has been 10%, but I see now 5%.

1. Run tax software to see your expected tax liability.

2. On last paycheck of year, make sure you exceed withholding for tax liability to make sure you get a refund.

3. File and get refund. Follow instructions for getting the bonus.

4. Bonus arrives before end of June. So you "loaned" government money from end-of-December to June, say 6 months: effective yield about 10%.
The only offers I've seen involve getting the 5-10% bonus when a refund is taken as an Amazon gift card. Seems like a big PITA to me, I don't think it's worth it. I truly don't see the upside, you've still loaned money to the government.

livesoft
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Re: Paying taxes with credit card?

Post by livesoft » Tue Dec 05, 2017 6:28 pm

OK, since it is a PITA to you, you wouldn't do it. For some people setting up a 6-month CD paying 5% interest is also a PITA. At least with Amazon, you don't have to change out of your pajamas or leave your abode. The stuff comes right to your door and it is stuff you would buy and use anyways (like tax software). So you save on having to dress to go out shopping and possibly gas, etc.

And yes, I already said you loaned money to the government.
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Ethelred
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Re: Paying taxes with credit card?

Post by Ethelred » Tue Dec 05, 2017 7:18 pm

livesoft wrote:
Tue Dec 05, 2017 5:44 pm
You probably have heard of this.

0. Use cashback credit card to buy tax software that gives a bonus on your refund. In past bonus has been 10%, but I see now 5%.

1. Run tax software to see your expected tax liability.

2. On last paycheck of year, make sure you exceed withholding for tax liability to make sure you get a refund.

3. File and get refund. Follow instructions for getting the bonus.

4. Bonus arrives before end of June. So you "loaned" government money from end-of-December to June, say 6 months: effective yield about 10%.
Thank you. I suspect you or someone else mentioned this last year, but I didn't fully think through the implications.

If the offer was 10%, I'd likely have leapt at it. 5% isn't quite so obvious, but I may still do it.

The details seem to be:
- You can buy an Amazon gift card or cards up to the maximum value of your refund
- The 5% of that gift card value is added on top
- Max $5000 per customer ($2000 per gift card) - it's not clear to me if this $5000 includes the added 5%
- Valid Jan 23 to Jul 31 2018

It looks like a great deal, and 5% of $5k is $250, far more than the cost of the software. But it's only worthwhile up to the amount that you would have spent at Amazon anyway (or would have bought somewhere and Amazon is still good value). We buy quite a lot from Amazon, but not $5250 per year. If we order really expensive items online, they come from suppliers with no base in state, so we can avoid sales tax.

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Re: Paying taxes with credit card?

Post by livesoft » Tue Dec 05, 2017 7:30 pm

Ethelred wrote:
Tue Dec 05, 2017 7:18 pm
But it's only worthwhile up to the amount that you would have spent at Amazon anyway (or would have bought somewhere and Amazon is still good value).
Yes, indeed. For instance, we know we will buy all the dog's food from Amazon.
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whodidntante
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Re: Paying taxes with credit card?

Post by whodidntante » Tue Dec 05, 2017 8:32 pm

I don't know how this became an Amazon gift card thread. 5% is OK but you can get that, nearly that, or better. Chase Freedom and other credit cards have rotating 5% categories and you can use that buy Amazon gift cards. Chase Pay also has been doing 10% off promotions lately that can be applied for gift cards. For standard don't leave the house slothiness, I use my BoA Travel Rewards with Platinum Honors which pays 2.625% base to buy a gift card from MPX which earns me 0.75 miles per dollar (so about 1 cent of value). 3.625% isn't 5%, but I also didn't need to pay estimated taxes, track that, and give an interest free loan to the government to get it.

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whodidntante
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Re: Paying taxes with credit card?

Post by whodidntante » Tue Dec 05, 2017 8:40 pm

Derivative wrote:
Tue Dec 05, 2017 3:36 pm
Do you guys pay your taxes with credit card? I see there is about a 1.87% fee with paying taxes with credit card, but some credit cards have a 2% reward percentage (so you would earn 0.13%). Is there a good card to pay taxes with since the credit card fees seem to be pretty low compared with cash back rewards?

Are there other things that most people miss out using a credit card on for cash back rewards?
I pay my mortgage, my car loan, and my property taxes with a credit card to get a small spread and the float. I have to pay a fee but still come out ahead. It's not a way to get rich, for sure.

I would pay my income taxes with a card but I have not properly researched it, and cursory research indicates it is dubious and possibly unlawful to knowingly under-withhold taxes and pay estimated taxes with a card.

I also paid all of my MBA tuition with a card, which is the mother lode of credit card rewards. So get an MBA if you want lots of points, LOL.

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teen persuasion
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Re: Paying taxes with credit card?

Post by teen persuasion » Tue Dec 05, 2017 9:47 pm

livesoft wrote:
Tue Dec 05, 2017 7:30 pm
Ethelred wrote:
Tue Dec 05, 2017 7:18 pm
But it's only worthwhile up to the amount that you would have spent at Amazon anyway (or would have bought somewhere and Amazon is still good value).
Yes, indeed. For instance, we know we will buy all the dog's food from Amazon.
That's a lot of dog food from Amazon!

I pass on this gift card deal - I spend my refund at Vanguard instead.

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Re: Paying taxes with credit card?

Post by livesoft » Tue Dec 05, 2017 10:02 pm

Vanguard would get my money, too --- if they sold dog food.
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Re: Paying taxes with credit card?

Post by tibbitts » Tue Dec 05, 2017 11:28 pm

Derivative wrote:
Tue Dec 05, 2017 3:36 pm
Do you guys pay your taxes with credit card? I see there is about a 1.87% fee with paying taxes with credit card, but some credit cards have a 2% reward percentage (so you would earn 0.13%). Is there a good card to pay taxes with since the credit card fees seem to be pretty low compared with cash back rewards?

Are there other things that most people miss out using a credit card on for cash back rewards?
I would need a bigger spread than .13% to make this interesting, given my income and taxes and credit limits, so I don't feel like I'm missing out by not doing this. I don't feel compelled to optimize everything - and usually don't even when I put some effort into it (I've forgotten to use a free airline ticket, had 20k miles expire, lost two free Marriott nights and an Amtrak ticket, accidentally threw away ten first-class AA upgrade certificates, and paid a $39 late fee, all while chasing miles/points.)

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Re: Paying taxes with credit card?

Post by AlohaJoe » Tue Dec 05, 2017 11:34 pm

teen persuasion wrote:
Tue Dec 05, 2017 9:47 pm
livesoft wrote:
Tue Dec 05, 2017 7:30 pm
Ethelred wrote:
Tue Dec 05, 2017 7:18 pm
But it's only worthwhile up to the amount that you would have spent at Amazon anyway (or would have bought somewhere and Amazon is still good value).
Yes, indeed. For instance, we know we will buy all the dog's food from Amazon.
That's a lot of dog food from Amazon!
Maybe it is expensive artisinal dog food :D

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Re: Paying taxes with credit card?

Post by jayk238 » Wed Dec 06, 2017 12:05 am

There are ways to getting points with credit cards. I have not done this but I have read about it extensively elsewhere.

Certain credit unions and some small banks will allow you to transfer money from credit card to the bank as a cash deposit. They wont see this as a cash withdrawl from Chase' end. This has 2 effects- 1. the limit is the credit limit and not the daily cash limit and 2. you will have 'cash' in the bank and have simply used a credit card to deposit it.

Then use the cash to pay your taxes. Then pay your credit card with your other money. Reap points, pay taxes, avoid fees!

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Re: Paying taxes with credit card?

Post by mikep » Wed Dec 06, 2017 11:25 am

5% refund bonus is not worth it at all. I have the prime CC which gives 5% back on amazon anyway, so I get the same results without tying up a refund in an amazon gift card.

Heck I have another CC which gives at least 7.5% back on amazon and most other stores so I would be losing 2.5% with the current H&R block offer or even the amazon prime CC. H&R block also says any amount of the refund bonus is taxable income to you, so probably losing even more.

How do I get back 7.5% on amazon and most other stores? I use Chase Ink cash to buy amazon and other GC's at gyft.com, staples, and/or office depot, earning 5x Chase Ultimate reward points per dollar. I transfer those reward points to my Chase Sapphire Reserve, redeemable for 1.5 cents each towards travel or more transferred to travel partners.

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Re: Paying taxes with credit card?

Post by solobuildingblogs » Fri Dec 08, 2017 1:17 am

This has been discussed extensively on flyertalk.com forums, if you want to google it.

One great deal is Bank of America travel rewards for platinum honors 2.625% back vs 1.87% fee is a 0.755% hedge/ profit, so if you decrease withholdings or are self employed that’s $76 for every $10,000 charged.

If you have the Amex Business blue Business (2.3 points per dollar, this card isn’t available anymore) or blue Business plus (2 points per dollar) each up to $50k per year and combine with Amex Business platinum which gets you 1.54 cents per point on airline of your choice, that’s like getting 3.54% or 3.08% back, which is a 1.672% or 1.21% profit.

Meeting minimum spend for cards is another good idea. Or certain cards such as chase United or Barclays Hawaiian or have something like spend $25,000 per year and get 15,000 bonus points. If you’re close to the $25,000 and can’t meet it might be worth charging remaining to the card but run the numbers to see if it makes sense.

MrJones
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Re: Paying taxes with credit card?

Post by MrJones » Fri Dec 08, 2017 3:59 am

livesoft wrote:
Tue Dec 05, 2017 5:44 pm
In past bonus has been 10%, but I see now 5%.

4. Bonus arrives before end of June. So you "loaned" government money from end-of-December to June, say 6 months: effective yield about 10%.
Problem 1: you have to get the base amount in Amazon gift cards as well, meaning you have to know you spend that much on Amazon. Worse yet, you might end up spending more than you normally would not on Amazon just because you got the card

Problem 2: you would have to deduct the yield for the length of time your money sits as an Amazon gift card until you were able to spend it all from your 10% above

Problem 3: you mentioned using a cash back card. You have to deduct the cashback from the 5% since you would have got that anyway if you had bought the gift cards using the cash back card to begin with. So with the 2% cash back card, the reflective profit is only 3%, or 6%pa from which you would have to reduce the yield in problem 2 above.

Net: too much trouble for too little IMHO

iflyjetzzz
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Re: Paying taxes with credit card?

Post by iflyjetzzz » Fri Dec 08, 2017 4:13 am

I've done this in the distant past to meet credit card spends. Not anymore; I don't chase credit card points. My time is better spent working another hour at work, not chasing a few pennies of credit card points.

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Re: Paying taxes with credit card?

Post by livesoft » Fri Dec 08, 2017 4:17 am

Of course it's too much trouble for most people to buy tax software and do their taxes. I'm going to buy tax software, do my own taxes, and buy dog food anyways, so I might as well get enough bonus to buy myself some sushi lunches, too. For some people it is too much trouble to open a savings account, but so what?
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iflyjetzzz
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Re: Paying taxes with credit card?

Post by iflyjetzzz » Fri Dec 08, 2017 4:26 am

livesoft wrote:
Fri Dec 08, 2017 4:17 am
Of course it's too much trouble for most people to buy tax software and do their taxes. I'm going to buy tax software, do my own taxes, and buy dog food anyways, so I might as well get enough bonus to buy myself some sushi lunches, too. For some people it is too much trouble to open a savings account, but so what?
I've used taxact.com in the past but they charge now. In 2016, I used freetaxusa.com - it's free. I don't file a state return; all good Bogleheads live in states with no income tax. :mrgreen:

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Re: Paying taxes with credit card?

Post by flamesabers » Fri Dec 08, 2017 9:19 am

iflyjetzzz wrote:
Fri Dec 08, 2017 4:26 am
I don't file a state return; all good Bogleheads live in states with no income tax. :mrgreen:
Living in a state without an income tax sounds good on paper, but you're probably getting charged more in property taxes and/or sales taxes. :wink:

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Re: Paying taxes with credit card?

Post by iflyjetzzz » Fri Dec 08, 2017 9:45 am

flamesabers wrote:
Fri Dec 08, 2017 9:19 am
Living in a state without an income tax sounds good on paper, but you're probably getting charged more in property taxes and/or sales taxes. :wink:
:mrgreen: ~$2.5K/yr on a house that appraises a bit north of $350K.
8.25% sales tax.

I looked at all of that before we moved. I ruled out TX due to high property taxes. Sales tax fell low on my scale because we don't consume a ton of stuff.

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Re: Paying taxes with credit card?

Post by TheCowbell » Wed Dec 27, 2017 11:22 am

I just searched bogleheads for this topic as I've decided to withhold all tax payments and make estimated payments with my credit card quarterly. My cc gives 3% cashback so with a total expected liability of over 25k in 2018 I'd make just shy of $300 tax-free. I like the idea of up to 4 months of float, plus the large amount of churning is arguably good for my credit score.

I'm not sure I see a downside, but am very open to reasons why I shouldn't do this. I have paid our liability on 4/15 annually with a credit card and it's always coded as a purchase. I have reduced my cash-advance limit on all my credit cards to $0 (as an aside, everyone should do that) so there's no possibility of that happening anyways.

Derivative
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Re: Paying taxes with credit card?

Post by Derivative » Wed Dec 27, 2017 12:18 pm

iflyjetzzz wrote:
Fri Dec 08, 2017 9:45 am
flamesabers wrote:
Fri Dec 08, 2017 9:19 am
Living in a state without an income tax sounds good on paper, but you're probably getting charged more in property taxes and/or sales taxes. :wink:
:mrgreen: ~$2.5K/yr on a house that appraises a bit north of $350K.
8.25% sales tax.

I looked at all of that before we moved. I ruled out TX due to high property taxes. Sales tax fell low on my scale because we don't consume a ton of stuff.
Which state do you live in?

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Re: Paying taxes with credit card?

Post by yangtui » Wed Dec 27, 2017 12:39 pm

I generated approximately $2,500 from cc signup bonuses by making an extension payment right before I filed my 2016 fed return. I overpaid by roughly 8k and got a refund several weeks before I needed to pay the credit card bill. Free money. Will probably look into doing it again with my 2017 fed return. As long as you have enough cash to cover the bill in case you do not get a refund in time it is a good deal.

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Re: Paying taxes with credit card?

Post by TheCowbell » Wed Dec 27, 2017 1:32 pm

yangtui wrote:
Wed Dec 27, 2017 12:39 pm
I generated approximately $2,500 from cc signup bonuses by making an extension payment right before I filed my 2016 fed return. I overpaid by roughly 8k and got a refund several weeks before I needed to pay the credit card bill. Free money. Will probably look into doing it again with my 2017 fed return. As long as you have enough cash to cover the bill in case you do not get a refund in time it is a good deal.
I hit cc bonuses on select offers through regular spending; I'm trying to make sure I understand why anyone wouldn't pay 100% of their state and federal tax liability every quarter via cc as opposed to through paycheck withholding.

I've always been a non-escrow guy on my mtg, and certainly would never select to have my bank withhold taxes on gains or interest on my behalf. I see this as a natural extension of that mindset.

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Re: Paying taxes with credit card?

Post by EnjoyIt » Wed Dec 27, 2017 2:44 pm

I think it all depends how much each dollar and each minute is worth it to you. This is even more true if you are retired and living off your investment assets. It actually takes less effort to pay your taxes via credit card as opposed to writing a check. Log in, type in information and done. Writing a check requires manually writing it, filling out the form and envelope and then mailing it. Some people go so far as to do certified mail which takes an extra step and time in the post office. Using EFTPS is even easier.

There are plenty of boglehead early retirees who are living on $40k-$50k/yr. An extra $1k/yr maximizing points is a pretty big deal. It decreases their withdrawal rate and makes their success rate even more likely. Also, an extra $1k/yr over many years compounded can be the difference of retiring 6 months earlier. Is that worth it? I don't know.

I paid my taxes with a credit card only once to meet minimum spend on a card and received 2 free round trip tickets that year. Since then I still pay all of my taxes online via EFTPS though attempt to use the best credit card for each consumer purchase since it takes almost no effort to pull out the best card for that moment.

I also waste 30 minutes to an hour sometimes trying to find the best price online for a purchase just to save $5. Is that worth my time? Probably not, but I simply can't get myself to do otherwise.

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Re: Paying taxes with credit card?

Post by TheCowbell » Wed Dec 27, 2017 2:56 pm

I hear you, I'm the same way regarding spending more time than is reasonable getting a better deal - I have no problem admitting it's the principle of not paying more than I 'should' for any given purchase.

That said, I could probably come up with a few more reasons why paying taxes via cc instead of paycheck deduction is a good thing for anyone at any income level. I don't expect to be laid off at the end of March but if I did I would be very glad to have not pre-paid a quarter of an estimated year's worth of high salary tax liability, especially if it took a few months or longer to find employment again. Why wait a year for money that would be back in your pocket eventually anyways?

As you mentioned, making that payment online is a non-event in terms of time - I'd probably do it if it were a small net-negative, and am struggling to understand why more bogle-minded folks don't do it when it's net-neutral/positive.

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Re: Paying taxes with credit card?

Post by onourway » Wed Dec 27, 2017 3:02 pm

I'm about to pre-pay my 2018 property taxes. My locality charges 2.35% fee to pay with a credit card. I don't have a card that pays more than about 1.5% on this kind of purchase (haven't gotten a better general card because I've been churning for bonuses, so avoiding the credit pull). I meet my minimum spends fairly easily through normal spending. I don't see any advantage of using the credit card option here. Seems like a cost, not a benefit. Am I missing anything?

TheCowbell
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Re: Paying taxes with credit card?

Post by TheCowbell » Wed Dec 27, 2017 3:10 pm

I'm specifically talking about income taxes - the federal and state (if applicable) taxes you normally see taken out of your paycheck. The fee to pay those via cc is 1.87%.

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Re: Paying taxes with credit card?

Post by TheCowbell » Thu Dec 28, 2017 1:44 pm

I just realized, this is the last year I (and many others) will be itemizing.

Since the 1.87% fee for making a federal tax payment is tax deductible, this makes a last-minute payment of your liability via cc before 2018 just a bit more advantageous. As my marginal tax rate is close to 40% the actual fee for making the payment is closer to 1.1% this last year.

I was going to wait until April to pay the remainder of my 2017 liability but I guess I'll do it now ... get my 3% cashback (1.9% actual) that much sooner.

Taking this thought one step further ... is it crazy to consider overpaying by a large amount? If we file next month, I could get a 1.9% tax-free return on any amount up to the limit of my cc. Better than any short term CD, amiright? :twisted:

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Re: Paying taxes with credit card?

Post by EnjoyIt » Thu Dec 28, 2017 3:00 pm

TheCowbell wrote:
Thu Dec 28, 2017 1:44 pm
I just realized, this is the last year I (and many others) will be itemizing.

Since the 1.87% fee for making a federal tax payment is tax deductible, this makes a last-minute payment of your liability via cc before 2018 just a bit more advantageous. As my marginal tax rate is close to 40% the actual fee for making the payment is closer to 1.1% this last year.

I was going to wait until April to pay the remainder of my 2017 liability but I guess I'll do it now ... get my 3% cashback (1.9% actual) that much sooner.

Taking this thought one step further ... is it crazy to consider overpaying by a large amount? If we file next month, I could get a 1.9% tax-free return on any amount up to the limit of my cc. Better than any short term CD, amiright? :twisted:
Are you sure the fee is tax deductible? I seam to remember some discussion of it in the past that argued against that.

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Re: Paying taxes with credit card?

Post by flamesabers » Thu Dec 28, 2017 3:03 pm

TheCowbell wrote:
Thu Dec 28, 2017 1:44 pm
Taking this thought one step further ... is it crazy to consider overpaying by a large amount? If we file next month, I could get a 1.9% tax-free return on any amount up to the limit of my cc. Better than any short term CD, amiright? :twisted:
Have you tried this sort of thing before? :confused

There are potential consequences with this idea:

*The payment processor might tack on extra fees for large amounts and/or limit the amount you can charge per SSN or credit card.
*The IRS might audit you as people purposely overpaying their tax bill by a large sum is unusual. It's one thing to have too much withheld from your paychecks, quite another to make a large (and unnecessary) payment to the IRS via credit card.
*Even if you're not audited, the IRS might hold onto your refund for an extra period of time just to verify you're not an identity thief or something.
*Your credit card company might flag this activity as possibly fraudulent and shutdown your card. Alternatively, your credit card company might just shut your card down for manufactured spending.

EnjoyIt
Posts: 1584
Joined: Sun Dec 29, 2013 8:06 pm

Re: Paying taxes with credit card?

Post by EnjoyIt » Thu Dec 28, 2017 3:07 pm

flamesabers wrote:
Thu Dec 28, 2017 3:03 pm
TheCowbell wrote:
Thu Dec 28, 2017 1:44 pm
Taking this thought one step further ... is it crazy to consider overpaying by a large amount? If we file next month, I could get a 1.9% tax-free return on any amount up to the limit of my cc. Better than any short term CD, amiright? :twisted:
Have you tried this sort of thing before? :confused

There are potential consequences with this idea:

*The payment processor might tack on extra fees for large amounts and/or limit the amount you can charge per SSN or credit card.
*The IRS might audit you as people purposely overpaying their tax bill by a large sum is unusual. It's one thing to have too much withheld from your paychecks, quite another to make a large (and unnecessary) payment to the IRS via credit card.
*Even if you're not audited, the IRS might hold onto your refund for an extra period of time just to verify you're not an identity thief or something.
*Your credit card company might flag this activity as possibly fraudulent and shutdown your card. Alternatively, your credit card company might just shut your card down for manufactured spending.
Last year I overpaid my taxes by a significant 5 figures and had no issues or delays. The overpayment was accidental. I followed safe harbor which overpays by 10% on top of which I had a significant deduction last year.

ZinCO
Posts: 60
Joined: Thu Nov 05, 2015 9:42 pm

Re: Paying taxes with credit card?

Post by ZinCO » Thu Dec 28, 2017 3:20 pm

EnjoyIt wrote:
Thu Dec 28, 2017 3:00 pm
TheCowbell wrote:
Thu Dec 28, 2017 1:44 pm
I just realized, this is the last year I (and many others) will be itemizing.

Since the 1.87% fee for making a federal tax payment is tax deductible, this makes a last-minute payment of your liability via cc before 2018 just a bit more advantageous. As my marginal tax rate is close to 40% the actual fee for making the payment is closer to 1.1% this last year.

I was going to wait until April to pay the remainder of my 2017 liability but I guess I'll do it now ... get my 3% cashback (1.9% actual) that much sooner.

Taking this thought one step further ... is it crazy to consider overpaying by a large amount? If we file next month, I could get a 1.9% tax-free return on any amount up to the limit of my cc. Better than any short term CD, amiright? :twisted:
Are you sure the fee is tax deductible? I seam to remember some discussion of it in the past that argued against that.
If I remember correctly it is only deductible if your miscellaneous deductions exceed 2% of AGI. Since that does NOT include SALT or mortgage interest, might be rather difficult for some of us to reach.

EnjoyIt
Posts: 1584
Joined: Sun Dec 29, 2013 8:06 pm

Re: Paying taxes with credit card?

Post by EnjoyIt » Thu Dec 28, 2017 4:15 pm

ZinCO wrote:
Thu Dec 28, 2017 3:20 pm
EnjoyIt wrote:
Thu Dec 28, 2017 3:00 pm
TheCowbell wrote:
Thu Dec 28, 2017 1:44 pm
I just realized, this is the last year I (and many others) will be itemizing.

Since the 1.87% fee for making a federal tax payment is tax deductible, this makes a last-minute payment of your liability via cc before 2018 just a bit more advantageous. As my marginal tax rate is close to 40% the actual fee for making the payment is closer to 1.1% this last year.

I was going to wait until April to pay the remainder of my 2017 liability but I guess I'll do it now ... get my 3% cashback (1.9% actual) that much sooner.

Taking this thought one step further ... is it crazy to consider overpaying by a large amount? If we file next month, I could get a 1.9% tax-free return on any amount up to the limit of my cc. Better than any short term CD, amiright? :twisted:
Are you sure the fee is tax deductible? I seam to remember some discussion of it in the past that argued against that.
If I remember correctly it is only deductible if your miscellaneous deductions exceed 2% of AGI. Since that does NOT include SALT or mortgage interest, might be rather difficult for some of us to reach.
Yup, the was it. Thanks

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JoMoney
Posts: 5919
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Re: Paying taxes with credit card?

Post by JoMoney » Thu Dec 28, 2017 6:24 pm

I've done it, but my motivation was the convenience of not having to mail any paperwork in, not the minuscule benefit of trying to arbitrage the credit card bonus. For some people it might add up to a significant amount (especially if it's used to churn for a large initial sign-up bonus on a credit card that requires a certain amount of spending)... but that wasn't the case for me.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

jessikaur
Posts: 56
Joined: Tue Mar 28, 2017 1:36 pm

Re: Paying taxes with credit card?

Post by jessikaur » Thu Dec 28, 2017 6:30 pm

jayk238 wrote:
Wed Dec 06, 2017 12:05 am
There are ways to getting points with credit cards. I have not done this but I have read about it extensively elsewhere.

Certain credit unions and some small banks will allow you to transfer money from credit card to the bank as a cash deposit. They wont see this as a cash withdrawl from Chase' end. This has 2 effects- 1. the limit is the credit limit and not the daily cash limit and 2. you will have 'cash' in the bank and have simply used a credit card to deposit it.

Then use the cash to pay your taxes. Then pay your credit card with your other money. Reap points, pay taxes, avoid fees!

now this is great. how do i do this??? i use chase extensively, but will switch to where ever !!!! I owed 10K in taxes last year.. =(

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Thrifty Femme
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Re: Paying taxes with credit card?

Post by Thrifty Femme » Thu Dec 28, 2017 6:33 pm

Yes, I've paid local taxes, which doesn't charge an extra free, and property taxes, which charges a 2.35% fee, with a credit card. I use the Citi Double Cash Back card for 2% back. The net .35% fee for the property taxes was only about $11, but the federal tax savings was more than worth it.

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