Editor’s note: The Barclaycard Arrival Plus World Elite Mastercard is no longer available through our site.
As 2019 begins, taxpayers will start preparing for tax season. In the midst of gathering receipts and setting up appointments with your accountant, consider how you might pay Uncle Sam in the event you owe money.
One way to ease the financial blow is to use a credit card and collect valuable rewards. But you’ll have to be smart about using this strategy, as there’s a fee for paying your taxes with plastic.
There are three official IRS processors to choose from, all of which charge different fees. You’ll want to choose the processor with the lowest fee, Pay1040.com at this writing but be sure to check before you sign up.
Pay 1040 charges credit card users 1.87 percent of the total balance, with a minimum fee of $2.59. In some cases, the processing fees themselves can be tax write-offs.
Who could benefit when they pay taxes with a credit card?
This strategy isn’t for everybody. If you don’t have the cash on hand to pay your tax bill now, you may be better off setting up an installment agreement with the IRS. If you think paying by credit card might benefit you, you should:
- Have good to excellent credit. You’ll need this to qualify for a top rewards card that offers a bonus and will pay you cash back when you use the credit card to pay your taxes.
- Pick a card with no annual fee. Cards that charge an annual fee may offer bigger rewards or perks, but this strategy is far less complicated to manage if you take cards that charge a fee off the table.Let’s take a look at some example scenarios of how much you can earn depending on what you owe and the card you choose. These scenarios assume you pick the cheapest processor when filing your return.
- Do the math. Make sure the benefits of using a credit card outweigh the processing fee.
- Pay off the balance when it’s due. This rule of thumb is always good to follow, but if you don’t have the money tucked away in a savings account, there are a number of rewards cards that offer a 0% introductory APR. This is akin to having an interest-free loan — that also rewards you for spending.
What you owe makes a difference
For people who are already shopping around for a new rewards card, this could be a good way to meet minimum spending requirements. Since you have to pay taxes anyway, you might as well enjoy some benefits.
|Tax bill||Processing fee|
If you used a credit card you already own that pays 2% cash back to pay off a $4,000 tax bill, you’d earn $5.20 after accounting for the processing fee. That’s why opening a new card to pay the bill may be more worthy in pursuing this strategy.
Here are examples of bonuses that are worth more than the fees.
- The annual fee is $95, waived the first year.
- This card carries no foreign transaction fee, a must for any cardholder who plans to travel overseas.
- The annual percentage rate is 17.24% to 24.49% Variable
- One-time bonus of 50,000 miles after you spend $3,000 within the first three months of card ownership.
- Unlimited travel rewards at 2 miles-per-dollar never expire. Every 100 miles can be redeemed for $1 worth of rewards.
- Rewards are flexible and can be redeemed at any airline, hotel or rental car.
- Rewards can be redeemed on discount travel sites.
- There are no foreign transaction fees — a must for any good travel card.
What you’d earn
Folks who like to travel and owe more than $3,000 can earn 50,000 miles in one shot with the Capital One Venture Rewards credit card. Miles are worth about 1 cent per mile, so that’s $500 in travel rewards. The annual fee is waived in the first year ($95 thereafter), so you would save money there, too.
Barclaycard Arrival Plus® World Elite Mastercard®
- This card charges a variable APR of 17.99%, 21.99% or 24.99% depending on your creditworthiness.
- Enjoy an introductory 0% APR offer for 12 billing cycles for each balance transfer made within 45 days of opening the account.
- The annual fee is $89 (waived the first year).
- Sign-up bonus: 70,000 miles (after spending $5,000 in the first 90 days), for a limited time only.
- Miles can be redeemed directly for travel purchases or as a statement credit.
- Get 5% of your miles back every time you redeem your miles.
What you’d earn
This is another great option for frequent fliers who owe more than $5,000. For a limited time, new cardholders will get 70,000 miles after spending $5,000 within the first 90 days. You won’t have to pay the annual $89 fee for the first year.
If you owe $3,000 or more
- Pay no annual fee for the first year, $95 after that.
- Variable APR rate of 15.99% – 24.99%.
- Pay no foreign transaction fee on purchases made outside the U.S.
- Earn a one-time $300 cash bonus once you spend $3,000 on purchases within 3 months from account opening.
- This card offers an unlimited 4% cash back on dining and entertainment, 2% at grocery stores and 1% on all other purchases.
What you’d earn
Foodies and people who like to dine out — and also happen to owe around $3,000 in taxes, would benefit from the Capital One Savor Cash Rewards credit card. The annual fee is waived in the first year and $95 after. You’ll also get a $300 cash bonus after you spend $3,000 within the first three months.
If you owe $1,000 or more
- Blue Cash Everyday charges no annual fee.
- You’ll pay a 2.7% foreign transaction fee on all purchases made outside of the United States.
- The balance transfer fee is either $5 or 3% of the amount being transferred, whichever is greater.
- There’s an introductory 15-month 0% APR offer on purchases and balance transfers. After that, the standard variable APR of 12.99%-23.99% applies.
- Earn $150 back after you spend $1,000 in purchases on your new Card in your first 3 months.
- Earn 3% back at U.S. supermarkets on up to $6,000 a year in purchases, then 1%.
- Earn an unlimited 2% back at U.S. gas stations and select U.S. department stores and 1% back on all other spending.
- There is no enrollment required to earn in any of the above categories.
- You’ll pay no annual fee.
- Terms apply.
For people who want a more all-purpose card for paying Uncle Sam, you might consider the Blue Cash Everyday Card from American Express. You only need to spend $1,000 in the first three months to get $150 back as a statement credit. You won’t have to pay an annual fee and the top rewards are earned at U.S. supermarkets.
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