Taxes, Credit Cards and Points

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

When did federal income taxes begin in the United States of America?  We can thank President Lincoln and Congress in 1861 for getting the ball rolling by imposing a 3% federal tax on incomes over $800 to fund the civil war.  Jump ahead to 1913 and we get the passage of the 16th amendment, the legalization of the income tax.

I may not like taxes, but I do love preparing the taxes every year.  It provides an opportunity to create a family profit and loss statement every year.  This fits in nicely with the financial date Jamie and I have each year – more on that in a later post.  In the spirit of education, I will share my strategy and rationale for paying our 2017 tax bill of around $2,000 with a credit card.

 

Tax Software

There are numerous free filing options.  For active military, Militaryonesource.com has provided access to free tax filing software for at least the last 12 years and this year was no different.  The product is from H&R Block.  Overall, it was straightforward and easy to use.  The ability to upload data from various financial institution has improved over the years.  It was a huge time saver to upload 1099-DIV and 1099-INT forms from Vanguard and TD Ameritrade.  All said and done, the additional tax to be paid was $2,000.  At the end, a person is given payment options of connecting to a bank account, mailing in a check or paying with a debit/credit card.  The processor option was PayUSAtax.com or as I saw it, $2.05 more than Pay1040.com.

IRS Payment Options

Processor Debit Card Credit Card Digital Wallet
Pay1040.com
(Link2GovCorporation)
888-729-1040 Payment
888-658-5465 ServiceInternational Non Toll-Free
1-501-748-8507 Live Operator
$2.59 flat fee

Visa Checkout
MasterCard
Discover
STAR
Pulse
NYCE
1.87% fee
Minimum fee $2.59

Visa
MasterCard
Discover
Amex
See debit or credit card fees

Visa Checkout
MasterPass
American Express Checkout
PayUSAtax.com
(WorldPay US, Inc.)
844-729-8298 Payment
855-508-0159 Live Operator
844-825-8729 ServiceInternational Non Toll-Free
1-615-550-1491 Payment
1-615-942-1141 Live Operator
1-615-550-1492 Service
$2.58 flat fee

Visa
MasterCard
Discover
STAR
Pulse
Accel
NYCE
1.97% fee
Minimum fee $2.69

Visa
MasterCard
Discover
Amex
See debit or credit card fees

 Includes:
MasterPass
PayPal logo
American Express Checkout

 

OfficialPayments.com/fed
(Official Payments)
888-872-9829 Payment
877-754-4420 Live Operator
877-754-4413 ServiceInternational Non Toll-Free
1-334-521-3842 Payment
$2.00 flat fee
($3.95 flat fee for
payments over $1,000)

Visa
MasterCard
Discover
STAR
Pulse
NYCE
1.99% fee
Minimum fee $2.50

Visa
MasterCard
Discover
Amex
See debit or credit card fees

Visa Checkout
American Express Checkout

Source and complete details: www.irs.gov/payments/pay-taxes-by-credit-or-debit-card.

What to do?

I am pathetic and I really, really wanted to save the $2.05.  Therefore, I reviewed the lower cost processor information and determined the payment will be matched by the IRS using the social security numbers listed on the payment and submitted tax form.  The website also was very clear that all payments are final – no do overs.  What could go wrong?  I pressed forward with the credit card payment.  Next, I went back to the tax prep software, put in my payment confirmation code and watched everything come to a grinding halt.  I soon learned that each payment processor produces its own code and quickly realized that I may have just paid into our 2018 tax bill.  I called customer service, who were extremely pleasant, but of no help or suggestions.  Thankfully, I recalled the matching social security number process and that not all IRS payments are done at submission.  Aha!  I changed the payment option to “mail”  to move the process along and finalized the tax submission.  The social security numbers were matched and, according to my IRS account transcript requested through the IRS website, the tax bill was paid off on March 12, 2018.

Credit Card

It may seem counter-intuitive for a debt free couple to pay one’s tax bill with a credit card.  In this case, the math added up.  We have the American Express Hilton Ascend.  After spending $15,000 within a year, the result is a minimum of 45,000 points ($270) and a free night ($350) to any Hilton property in the world.  Based on our Diamond status with Hilton and a room redemption, I project a return of approximately 4.1% in value on that first $15,000 of spend.  The net amount is 2.23% ($45.78) of value resulted from subtracting out the processing fee (4.1% – 1.87%).  As luck would have it, while I was waiting to ensure my tax payment was received, AmEx ran a promotion of 10,000 additional points for every $3,000 spent; this will add to the overall return.

Warning:  It is critical that a person pay off the full credit card amount each billing cycle and have a credit card with a return greater than 1.87% for this strategy to work.

Final Thoughts

For those that are debt free, disciplined and looking to maximizing points, paying your taxes with a credit card may be an option.  Your financial situation and own analysis will be the deciding factors if this educational post is for you.  For me, I loved the challenge of earning a few more hotel points to pay off Uncle Sam.  I wish you the best toward financial security, freedom and adventure.

Post Script

  • Select the lowest IRS payment processor
  • Paying taxes with a credit card is a viable option to accrue points
  • Pay all credit card bills off every month
  • I value one Hilton Honors point at 0.6 cents
  • www.irs.gov for free filing lists

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