Should I Pay My Taxes with a Credit Card to Earn Points?

I don’t know why, but I’m somewhat surprised by how often I see this promoted as a useful strategy. Sure, if you have a hefty tax obligation in a given year or frequently have to make estimated payments, it’s an easy way to add to your points and miles balance. But it comes at a cost.

As it stands, the cheapest processor through IRS.gov charges 1.87% for credit card payments. Compare that to a $2.00 flat fee when paying by debit card. If your tax bill is $1,000, for example, you’re effectively paying $18.70 for 1000 points. Another way to think of it is as if you’re buying points at a rate of 1.87 cents/point.

This means that in order for this to be a break-even proposition, you’d have to get 1.87 cents/point in value when you redeem them. For lazy folks like me who rely on the Chase Sapphire Reserve or other similar portal uplift cards, we’re usually around the 1.5 cents/point mark. Not a great deal if that’s your typical redemption strategy. 1.87 cents/point in redemption value isn’t outlandish, especially for the savvy among us, but it’s not a given.

Quite a few writers promote tax payments as an easy way to meet the minimum spend requirement for one of those lucrative sign-on bonuses. I get the strategy. Few, including myself, would balk at paying a few bucks to trigger the bonus. However, as someone who takes a more conservative approach, I’m usually only applying for cards if I know I’ll hit the sign-on bonus naturally, through normal spend.

You could argue that most merchants raise prices to accommodate credit card processing rates, so I’m likely paying more for most purchases anyway. That’s fair. Maybe it’s because these tax payment processing fees are conspicuous, they give me greater pause.

Of course, I’m approaching this from the perspective of an individual. For business owners, these processing fees may be tax deductible, which will certainly make them less offensive.

It’s a rare occasion when I would consider purchasing points and miles. I don’t like the pressure of having to get a certain redemption value out of them. Paying a fee when I may not have to otherwise is contrary to my “get something for nothing” mantra. This isn’t me telling you not to do it. This is just one of those decisions that muddies the water of points and miles efficiency. Though, enjoying this hobby is about learning how to take delight in wading through the mud.