Why I Paid My Taxes With a Credit Card
We can all let out a sigh of relief because Tax Day, which is the one day of the year that we all don’t look forward to unless you happen to be Uncle Sam is finally past us! What made tax day worse this year is that it was on a Monday…what a way to start off the week.
Now, I know I’m a bit late to be writing a blog on taxes since Tax Day was a few weeks ago. Plus, I’m sure that you don’t want to be thinking about taxes at this moment, but I wanted to share with you all how I was able to make paying my taxes less painful, and that was by using my credit card to pay for them. I’m sure that a lot of you had no idea you could pay your taxes with a credit card, but don’t feel left out because neither did I. Apparently, the IRS has been allowing taxpayers to do this since 1999…where have I been all this time?!
Now, the reason I chose not to write out a check to Uncle Sam to pay my taxes as I’ve done in the past couple of years and instead paid my taxes with a credit card is so that I can earn points from it. If you don’t have any idea what points are, they’re rewards provided by credit card companies for spending money on their cards. These points can then be redeemed for various things, but the one that we’re going to be focussing on is redeeming them for travel.
You see, a lot of credit card companies are partnered with various hotels and airlines, which allows you to redeem your points to pay for these major expenses that come with traveling. I know it seems like I’m making all of this up, but trust me, I’m not!
I now have 13 credit cards and between all of them, I’ve earned close to 1 million points, which is crazy to say because I got my first credit card only 4 years ago. Using the points I’ve earned on my credit cards has allowed me to pay for thousands of dollars worth of travel.
Not having to come out of pocket for hotels and flights has made all my trips more enjoyable because I know that I won’t be coming back from my trip and telling myself “I’m never going to financially recover from this!!!”
Before I go over how many points I earned from paying my taxes with a credit card I want to make it very clear that you should NOT pay your taxes with a credit card if you can’t pay it off right away. This goes for any purchases you make because if you carry a balance you’ll end up paying interest on it and the average rate for credit cards is 21%. If you’re paying interest on your credit cards, then it defeats the purpose of you earning points from them to pay for travel. This is how these credit card companies are able to give out points to people like me because there are people who fall into the trap of carrying a balance and paying interest on it.
Ok, with that being said, this year I owed roughly $15,000 in taxes to Uncle Sam. I knew that I had two options and those were…
#1) Pay my taxes by writing a check out to the IRS, then curl up in a ball and cry.
#2) Use a credit card to pay my taxes so that I can earn some points!!!
I’ve already experienced option A a few times and it wasn’t very pleasant, so I decide to go with option B.
I just got the American Express Business Gold Card, which offered a 125,000-point sign-up bonus after spending $10,000 within 3 months. There’s no way I’d be able to spend that much from my everyday spending, but luckily, I was hit with a $15,000 bill from the IRS, so I used my credit card to pay my taxes. I then made sure to pay off the balance to avoid having to pay any interest on it.
Not only did I earn the 125,000-point sign-up bonus, but I also earned an additional point for each dollar I spent. So by paying $15,000 for my taxes, I received an extra 15,000 points, bringing the total amount I earned from paying my taxes to 140,000 points!
Now, I do want to point out (no pun intended) that there is a transaction fee that you’ll be charged when paying your taxes with a credit card. There are three companies the IRS allows you to use to pay your taxes with a credit card, but the one with the lowest transaction fee is “payUSAtax”, which charges a 1.82% transaction fee. This means that for every dollar you’ll be charged 1.82¢. So when I paid the $15,000 for my taxes, I had to pay around $273 for the transaction fee, which I know sounds like a lot, but the value of those points I earned is worth a ton more. Each point is worth at least 1¢ when redeemed for travel, so the 140,000 points I earned are worth at least $1,400. That’s why I was completely fine with paying the transaction fee.
Here’s an example of how I could use these points to travel for free. Let’s say I wanted to go on a weekend trip to LA. I decide to ball out and fly on first class. If I paid for that with cash, it would cost me roughly $1,000 but instead, I can pay for it using 69,000 points and a few dollars for taxes. The hotel that I’ll be staying at would cost me roughly $300 a night, but instead only costs 20,000 points a night. Since I’ll be staying there for two nights it’ll cost me 40,000 points. I don’t have enough points left to fly on first class again, but thankfully it will only cost me 21,000 points to fly on economy and if I were to pay for it with cash it would’ve cost me roughly $200.
So if I were to pay for my weekend trip to LA with cash it would end up costing me around $1,800 between the flight and hotel, but instead, I’ll essentially get to travel for free by using my points!!! How amazing is that?!
It's important to understand there are unavoidable expenses that come up in our lives such as taxes. So why not leverage a credit card to pay for these expenses so that you can earn points and enjoy all of the perks that come from it? Just remember to always pay off your balance!
If you haven’t started using points from credit cards to travel for free, then now is the time to do so! The days of paying for hotels and flights are over. If you want recommendations on which credit cards you should get, then be sure to reach out to me.
