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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brad.clarkston
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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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flamesabers
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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.

snowox
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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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sunny_socal
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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.

livesoft
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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.

livesoft
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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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tibbitts
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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

jayk238
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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!

mikep
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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.

livesoft
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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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flamesabers
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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:

iflyjetzzz
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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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