Large tax bill - pay with credit card?

[bismarck23]

My dad passed away last year, and before he died, he converted a large amount of money to a Roth IRA. The executor is working on his 2022 income tax return, and tax bill will be about $300k federal and $60k state (NY). By agreement with the executor, I'll be paying the tax bill, because I benefitted from inheriting Roth assets instead of pre-tax, and can cover the taxes through taxable assets I also inherited.

I have a Bank of America credit card that pays 2.63% cash back, and I understand the service fee on credit card tax payment is 1.87% federal and 2.25%. That's about $2,500 net cash back, which is attractive enough to me to go after.

Is there anything about the mechanics of paying a tax bill of this size I should look out for? Any reason I can't log into Pay1040.com and make a payment once the return is finalized and the total amount due is known? Would it matter that I'm not the name on the return, or the executor? I have not yet discussed this question with the accountant preparing the return.

One issue is the credit limit on the BofA card, which is currently $20k. I have nine credit cards total, with an aggregate limit of $180k. When I applied for this card last year, I asked for a higher credit limit and was turned down, I'm guessing because my total credit card limit is high. But I pay off balances every month and don't need a high limit. Of my other eight cards, I estimate I only need a total limit of (conservatively) $60k, which would free up $120k for this card, if the total limit stays the same. I'm assuming it's possible to call and ask for a credit limit to be reduced? I'm not planning on borrowing any money anytime soon, so I don't care much about my credit score. Any problems I'm not foreseeing with reducing a credit card limit?

Instead of, or in addition to, reducing limits on other cards, I could ask BofA to raise the limit again based on my assets with them. Since last year, I've transferred about $1.6M to Merrill Edge. I'd rather not lower other card limits unless it's necessary, but I'm not sure how high a limit they'll give me. I'd like at least $100k, if not more, so I can make the payments in at most three steps in early April. Any suggestions here?

[CardinalRule]

I'm not experienced in this area, but have you taken a look at the "primer" thread by whodidntante?

viewtopic.php?t=276677

[dukeblue219]

I've certainly done this a thousand or two at a time, but I have to wonder if you're going to run into trouble pushing $300k worth of taxes through a CC in a short window.

I would hate for BoA to determine it was abusive or suspicious and block or cancel the card. Will they? I don't know.

[hoffse]

I pay between $25-$40k per quarter with credit cards.

The issue you are going to run into here is your credit limit. The IRS states you can only make 2 payments per quarter or pay period. Because of this rule, the card processors themselves each accept 2 payments per quarter or pay period, and then they cut you off after that. There are 3 card processors so in reality you can do it up to 6 times…. But you can’t do more than 6.

I personally try to stick with 2 cards tops because of the original IRS rule on this, but there have been a couple quarters when I swiped a third due to bonuses, etc I wasn’t expecting (and I had underpaid with my 2 previous swipes). I haven’t had issues doing this, and my IRS account always reflected the extra swipes.

But even if you are willing to do 6 swipes…. For $300k you are going to need a much higher credit limit than you have.

Paying in installments to spread it out is an option but it’s not a good deal because you would then owe interest and that eliminates the rewards you get.

The other potential issue is BoA may flag you for maxing out your limit, then paying it off, then maxing again, and so on in a single credit period. I don’t know how BoA treats this, but some banks are more sensitive to it than others. I use the same BoA card that you do for mine, but once I hit the limit I stop. If there are still more taxes to pay I use an AmEx card or I time it so I can swipe BoA again after the statement period has closed.

ETA: BoA will move credit limits around between their own cards - so if you have a couple of their other cards you could lower the limits on those for a couple months and move those lines to the premium card temporarily…. But lowering limits on your non-BoA cards isn’t guaranteed to do anything.

You might just need to accept that you will be capped in how much you can pay by card and then do the balance by check.

[pizzy]

The issue is credit limit.

All the other concerns aren't issues.

[MrJedi]

Agree no issues other than credit limit. This is also a good opportunity to sign up for some new cards with high sign up bonuses with high spending requirement.

[Point]

You can ApS ways save yourself potential sweat and grief and just pay it with a check or transfer. Sometimes sleep is better than gaming the system…

[bismarck23]

I'm not experienced in this area, but have you taken a look at the "primer" thread by whodidntante?

viewtopic.php?t=276677

No, but thank you, I will check it out.

[bismarck23]

Agree no issues other than credit limit. This is also a good opportunity to sign up for some new cards with high sign up bonuses with high spending requirement.

CapitalOne had a $3,000 bonus on a Spark card last year when I looked, which I would definitely go after. I don't see any great bonuses available now, but I'll keep my eyes open.

[bismarck23]

I pay between $25-$40k per quarter with credit cards.

The issue you are going to run into here is your credit limit. The IRS states you can only make 2 payments per quarter or pay period. Because of this rule, the card processors themselves each accept 2 payments per quarter or pay period, and then they cut you off after that. There are 3 card processors so in reality you can do it up to 6 times…. But you can’t do more than 6.

I personally try to stick with 2 cards tops because of the original IRS rule on this, but there have been a couple quarters when I swiped a third due to bonuses, etc I wasn’t expecting (and I had underpaid with my 2 previous swipes). I haven’t had issues doing this, and my IRS account always reflected the extra swipes.

But even if you are willing to do 6 swipes…. For $300k you are going to need a much higher credit limit than you have.

Paying in installments to spread it out is an option but it’s not a good deal because you would then owe interest and that eliminates the rewards you get.

The other potential issue is BoA may flag you for maxing out your limit, then paying it off, then maxing again, and so on in a single credit period. I don’t know how BoA treats this, but some banks are more sensitive to it than others. I use the same BoA card that you do for mine, but once I hit the limit I stop. If there are still more taxes to pay I use an AmEx card or I time it so I can swipe BoA again after the statement period has closed.

ETA: BoA will move credit limits around between their own cards - so if you have a couple of their other cards you could lower the limits on those for a couple months and move those lines to the premium card temporarily…. But lowering limits on your non-BoA cards isn’t guaranteed to do anything.

You might just need to accept that you will be capped in how much you can pay by card and then do the balance by check.

Thanks, this is great info.

I'm surprised to hear the bank might have an issue if I charge up to the credit limit, then pay off the card, then charge up to the limit again within a short time, even repeating that several cycles. I thought the reason they cared about credit limit is so I wouldn't carry a balance so big I couldn't pay it back. If I pay it off immediately, I'm not sure why they would care.

[Nate79]

I pay between $25-$40k per quarter with credit cards.

The issue you are going to run into here is your credit limit. The IRS states you can only make 2 payments per quarter or pay period. Because of this rule, the card processors themselves each accept 2 payments per quarter or pay period, and then they cut you off after that. There are 3 card processors so in reality you can do it up to 6 times…. But you can’t do more than 6.

I personally try to stick with 2 cards tops because of the original IRS rule on this, but there have been a couple quarters when I swiped a third due to bonuses, etc I wasn’t expecting (and I had underpaid with my 2 previous swipes). I haven’t had issues doing this, and my IRS account always reflected the extra swipes.

But even if you are willing to do 6 swipes…. For $300k you are going to need a much higher credit limit than you have.

Paying in installments to spread it out is an option but it’s not a good deal because you would then owe interest and that eliminates the rewards you get.

The other potential issue is BoA may flag you for maxing out your limit, then paying it off, then maxing again, and so on in a single credit period. I don’t know how BoA treats this, but some banks are more sensitive to it than others. I use the same BoA card that you do for mine, but once I hit the limit I stop. If there are still more taxes to pay I use an AmEx card or I time it so I can swipe BoA again after the statement period has closed.

ETA: BoA will move credit limits around between their own cards - so if you have a couple of their other cards you could lower the limits on those for a couple months and move those lines to the premium card temporarily…. But lowering limits on your non-BoA cards isn’t guaranteed to do anything.

You might just need to accept that you will be capped in how much you can pay by card and then do the balance by check.

Thanks, this is great info.

I'm surprised to hear the bank might have an issue if I charge up to the credit limit, then pay off the card, then charge up to the limit again within a short time, even repeating that several cycles. I thought the reason they cared about credit limit is so I wouldn't carry a balance so big I couldn't pay it back. If I pay it off immediately, I'm not sure why they would care.

Google credit cycling. It is very risky.

[bismarck23]

I pay between $25-$40k per quarter with credit cards.

The issue you are going to run into here is your credit limit. The IRS states you can only make 2 payments per quarter or pay period. Because of this rule, the card processors themselves each accept 2 payments per quarter or pay period, and then they cut you off after that. There are 3 card processors so in reality you can do it up to 6 times…. But you can’t do more than 6.

I personally try to stick with 2 cards tops because of the original IRS rule on this, but there have been a couple quarters when I swiped a third due to bonuses, etc I wasn’t expecting (and I had underpaid with my 2 previous swipes). I haven’t had issues doing this, and my IRS account always reflected the extra swipes.

But even if you are willing to do 6 swipes…. For $300k you are going to need a much higher credit limit than you have.

Paying in installments to spread it out is an option but it’s not a good deal because you would then owe interest and that eliminates the rewards you get.

The other potential issue is BoA may flag you for maxing out your limit, then paying it off, then maxing again, and so on in a single credit period. I don’t know how BoA treats this, but some banks are more sensitive to it than others. I use the same BoA card that you do for mine, but once I hit the limit I stop. If there are still more taxes to pay I use an AmEx card or I time it so I can swipe BoA again after the statement period has closed.

ETA: BoA will move credit limits around between their own cards - so if you have a couple of their other cards you could lower the limits on those for a couple months and move those lines to the premium card temporarily…. But lowering limits on your non-BoA cards isn’t guaranteed to do anything.

You might just need to accept that you will be capped in how much you can pay by card and then do the balance by check.

Thanks, this is great info.

I'm surprised to hear the bank might have an issue if I charge up to the credit limit, then pay off the card, then charge up to the limit again within a short time, even repeating that several cycles. I thought the reason they cared about credit limit is so I wouldn't carry a balance so big I couldn't pay it back. If I pay it off immediately, I'm not sure why they would care.

Google credit cycling. It is very risky.

Interesting. Sounds like BofA has been known to close accounts, which I definitely don't want. I'm working with a banker in my local office to transfer over investment assets to ME. I wonder if telling them what I want to do, explaining this is a one-time huge tax bill, asking for a very high credit limit, might work. I find openness and honesty to be good strategies in other areas of life, maybe here too.

Does anyone know whether BofA is making or losing money on a transaction like this? Like, are they collecting a 3% service fee from the vendor and thus making money, or 2% and thus losing money? They may be less willing to help me with this "project" if they're going to lose money on it.

[MrJedi]

I pay between $25-$40k per quarter with credit cards.

The issue you are going to run into here is your credit limit. The IRS states you can only make 2 payments per quarter or pay period. Because of this rule, the card processors themselves each accept 2 payments per quarter or pay period, and then they cut you off after that. There are 3 card processors so in reality you can do it up to 6 times…. But you can’t do more than 6.

I personally try to stick with 2 cards tops because of the original IRS rule on this, but there have been a couple quarters when I swiped a third due to bonuses, etc I wasn’t expecting (and I had underpaid with my 2 previous swipes). I haven’t had issues doing this, and my IRS account always reflected the extra swipes.

But even if you are willing to do 6 swipes…. For $300k you are going to need a much higher credit limit than you have.

Paying in installments to spread it out is an option but it’s not a good deal because you would then owe interest and that eliminates the rewards you get.

The other potential issue is BoA may flag you for maxing out your limit, then paying it off, then maxing again, and so on in a single credit period. I don’t know how BoA treats this, but some banks are more sensitive to it than others. I use the same BoA card that you do for mine, but once I hit the limit I stop. If there are still more taxes to pay I use an AmEx card or I time it so I can swipe BoA again after the statement period has closed.

ETA: BoA will move credit limits around between their own cards - so if you have a couple of their other cards you could lower the limits on those for a couple months and move those lines to the premium card temporarily…. But lowering limits on your non-BoA cards isn’t guaranteed to do anything.

You might just need to accept that you will be capped in how much you can pay by card and then do the balance by check.

Thanks, this is great info.

I'm surprised to hear the bank might have an issue if I charge up to the credit limit, then pay off the card, then charge up to the limit again within a short time, even repeating that several cycles. I thought the reason they cared about credit limit is so I wouldn't carry a balance so big I couldn't pay it back. If I pay it off immediately, I'm not sure why they would care.

Google credit cycling. It is very risky.

Interesting. Sounds like BofA has been known to close accounts, which I definitely don't want. I'm working with a banker in my local office to transfer over investment assets to ME. I wonder if telling them what I want to do, explaining this is a one-time huge tax bill, asking for a very high credit limit, might work. I find openness and honesty to be good strategies in other areas of life, maybe here too.

Does anyone know whether BofA is making or losing money on a transaction like this? Like, are they collecting a 3% service fee from the vendor and thus making money, or 2% and thus losing money? They may be less willing to help me with this "project" if they're going to lose money on it.

Anything 2% or higher is likely a loss to the lender, but they are banking on some percentage of people to end up carrying a balance and paying interest.

Additionally the BoA is a unique because it's part of a relationship bonus. Some of that may be accounted for as asset acquisition cost.

[BicycleLover]

Remember this guy?

https://nypost.com/2015/11/18/billionai ... he-points/

[bismarck23]

Remember this guy?

https://nypost.com/2015/11/18/billionai ... he-points/

He only got a cash back rate of about 1%. Amateur!

I'd like to know how he got a credit limit >$100M though.

[MrJedi]

Remember this guy?

https://nypost.com/2015/11/18/billionai ... he-points/

He only got a cash back rate of about 1%. Amateur!

I'd like to know how he got a credit limit >$100M though.

He used the Amex Centurion card which is the super high end, invitation only, charge card. Charge cards don't have a credit limit, typically you have some sort of algorithm-based spending power. Somebody who has a Centurion card surely has pretty high spending power though since they're only offered to people who regularly spend a ton each year (one of the "tips" to get invited is to spend $250k+ each year on Amex cards).