How to Your Pay Taxes with a Credit Card 2018

Tax returns are due on April 17, 2018. If you owe taxes, you might benefit from paying your taxes with a credit card by meeting minimum spend on a new card.

Most people who benefit from paying taxes with a credit card are getting excess income from "surprise income."

Sebby's Dictionary

Surprise income: money received that didn't get typical withholdings.

Examples:

a) Savings/checking bonuses

b) Capital gains from investments

c) Increased ordinary income:
   i) Bonus
   ii) Pay jump (new bracket)
   iii) Non-capital gain investments
       (i.e., buy/sell any crypto w/ a net gain)

How to Pay Taxes with a Credit Card

  1. Go through the tax process like you normally would with your choice of tax software like TurboTax or H&R Block.
  2. After you complete filling in your information, the software will show you how much you owe in taxes.
  3. Select the option that says you'll send a check to pay taxes separately.

If you're using tax software like TurboTax, the fees for paying with a credit card are high:

 turbotax credit card fees

turbotax credit card fees

The credit card fees are signifcantly less when you go directly through the IRS.gov website, and in some cases, they are the exact same payment processors that TurboTax uses. 

 source: https://www.irs.gov/payments/pay-taxes-by-credit-or-debit-card

source: https://www.irs.gov/payments/pay-taxes-by-credit-or-debit-card

An alternative method to pay your taxes with a credit card is Plastiq. Instead of charging a minimum fee, Plastiq charges a flat 2.5% fee.

Try Plastiq and get $500 in fee-free dollars after you spend $500 (referral link): http://bit.ly/asksebby-plastiq

When you pay your taxes online using one of these methods, you'll need to submit your social security number, legal name, and the amount you are paying.

Comparing Fees from Payment Processors

Below is a chart comparing the fees from the different payment processor options. 

Access the spreadsheet here: http://bit.ly/2Fm2xRR

Be sure to "Download As" or "Save a Copy" to modify it. 

The GREEN cells show the breakeven point for each payment processor. 

If you owe at least $500 in taxes, then it makes sense to consider Plastiq because you can get $500 in fee-free dollars after you spend $500 using a referral link: http://bit.ly/asksebby-plastiq

For any amount ranging from $500-$1985 in taxes, I recommend using Plastiq because it will result in the least amount of fees.

For any amount above $1,985 in taxes, use the payment processor that charges the least amount in fees. In this example, it would be Pay1040. 

Should You Pay Taxes with a Credit Card?

You should only pay your taxes with a credit card if you're getting more value than the credit card fees.

1) Signup bonuses

if you're working on reaching minimum spend for a new credit card, and the signup bonus gives you outsized value. 

2) Positive expected value from spend multipliers

     a) Amex SPG / SPG Business (1x * 3 CPP = 3% ROS)

     b) Amex Blue Business Plus (2x * 2 CPP = 4% ROS)

     c) Citi Double Cash / Chase Freedom Unlimited / etc. (2% to 2.25% ROS)

        (if fees less than 2% or 2.25%, run the numbers)

You can view credit card offers by going to the "Credit Card Offers" tab. Find offers for the respective cards in "Travel Rewards Credit Cards" and "Business Credit Cards." You don't have to use our links, but we're grateful when you do. Thank you for supporting AskSebby!

Another item to consider is that you can use up to two credit cards to pay taxes during your current tax year. This means you could potentially hit two minimum spends, depending on how much tax you owe.

Pay 2.JPG

If you file an amendment and end up overpaying your taxes, the IRS will refund you that amount. 

Pay 3.JPG