7. Paying Your Taxes by Credit Card (Part 2)

Welcome to Point Me to First Class, the only show for employed professionals, entrepreneurs, and business owners who are looking to optimize their higher-than-average expenses to travel the world. I'm your host, Devon Gimbel, and I believe that your expenses are your greatest untapped asset if you know how to leverage them. Ready to dive into the world of credit card points and miles so you can travel more, travel better, and travel often? Let's get started.

Welcome back everybody. Today we are going to be diving into the second part of our Paying Taxes by Credit Card series. If you didn't catch last week's episode yet, you're definitely going to want to hit pause on this episode and go back to check that out to hear not only how you actually go about paying your taxes by credit card if you want to.

But more importantly, how to walk yourself through the math so that you can determine whether or not it even makes sense for you to consider paying your taxes by credit card, and how you can be sure that the points you're going to earn are going to be worth much more in value than the processing fee you have to pay in order to use a credit card to make your tax payment.

Before we dive into that topic, I wanted to give a shout out to some of the winners of the 100 prizes for 100 reviews Point Me to First Class podcast giveaway that just wrapped up. This podcast is less than a month old, and over 800 of you have already rated and reviewed the podcast. I am so, so grateful to all of you. I've had so much fun reading all of the reviews that were submitted and getting the prizes ready to be shipped out to all of the prize winners that I think we might just have to do another prize giveaway on the podcast again in the future.

So if you submitted a review but didn't win a prize this time stay tuned because this will not be the last time we run a giveaway like this. Now, I'm not going to be able to share the reviews of all of the podcast prize winners because there are 100 of them, but I do want to highlight a few here.

First, the winner of one of the two $250 gift certificates to Monos Luggage, who requested that their name not be shared, wrote, “The guidance I've been seeking. This podcast answers so many questions I've been struggling with for years. I love to travel, and I have a couple of reward earning credit cards, but for the life of me, I could not figure out how to effectively translate my points into travel that made a difference. When I did use points, I would use so many for a reward that I sometimes thought cash made more sense. Thank you for this podcast. I'm excited for the journey.”

Thank you so much for that review. I am also so excited for your journey, and I hope that you get some fantastic luggage for your points travels in the future with a gift certificate that you won. Another review from Deesha Mago, one of the winners of a Drowsy Brand silk sleep mask, wrote, “Such easy to digest, high yield information. Highly recommend. Devin breaks things down so easily. I'm learning so much and having so much fun undoing it.” Thank you, Deesha, for that review.

One of my main goals with this podcast is to make it easy and fun for you all to learn and use points for travel so that it doesn't feel like another job on top of everything else that you already have to do to get a lot out of this hobby. So again, thank you to everyone who participated in the 100 prizes for 100 reviews podcast giveaway. If you were one of the winners, you will have already received an email to let you know that your prize is on your way to you as we speak.

Now, let's dive back into taxes and credit cards. If you're all caught up on last week's episode and you've done the math and decided that it makes sense for you to pay your taxes using a points earning credit card, you might now be wondering, what are the best rewards credit cards to use to make your tax payment in order to maximize the number of points that you can earn? Not all points earning credit cards will be equally valuable when it comes to paying taxes.

So in today's episode, we are going to look at three main categories of credit cards that can be fantastic for paying your taxes and highlight a few examples of specific credit cards that fall into each of those categories so that you can be prepared to make the most out of your tax payment. This will be coming just in time since you may be getting ready to make a tax payment today or tomorrow before taxes are due.

Here's how the information in this episode can be most useful for you if you do have taxes to pay, and you want to use a credit card. Since you won't have enough time to apply for a new credit card and receive it in order to make your tax payment today or tomorrow, consider these two things as you listen to the recommendations that I'll make about specific credit cards during this episode.

Number one, do you already have a rewards credit card that you can use to make your tax payment, especially if it falls into one of the categories that I discuss today? If so, use that card or cards. Number two, if you don't currently have any rewards credit cards that you can use to make your tax payment, or if you only have rewards credit cards that would earn you one point per dollar spent and at that rate the math doesn't support it being a good decision for you to pay your taxes by credit card.

Then I want to invite you to listen to the credit cards I'm going to be telling you more about today and take some notes on which one or ones you might be interested in applying for to have them ready for the next time you have a tax payment due, whether that's in a few months for a quarterly estimated tax payment or next year for your annual tax payment.

So first, let's look at three main categories of rewards credit cards that are great for paying taxes and why. The first category of rewards credit cards that you want to consider using to pay your taxes is any new rewards credit card that you have where you can use your tax payment to meet or help meet the initial spending requirement in order to earn a sign up bonus for that credit card.

This is because when you can use your tax payment to earn the sign up bonus for a new credit card or even potentially more than one sign on bonus for more than one rewards credit card, you're going to be earning much more than 1.5 or two points per dollar spent for your tax payment. Rather, you could easily earn five to ten points per dollar spent or more when you earn a new credit card sign on bonus with your tax payment giving you a huge bang for your tax buck in terms of points earning.

The second category of rewards credit card that can be tastic for paying your taxes is an airline or hotel cobranded credit card where your tax payment can help you earn or maintain a level of status within a loyalty program that you value. Many airline and hotel specific credit cards, like an American Airlines credit card or a Hyatt Hotel credit card, allow money spent on that card to earn perks or benefits within that loyalty program or help you earn status in that program that can make your next flight or hotel stay even more enjoyable.

The third category of rewards credit card that can be great for making tax payments includes any personal or business credit card that earns more than one point per dollar spent. Because, as you heard in the last episode, at that points earning rate, you can almost always get more value from the points you earn by paying your taxes with a rewards credit card than the cost of the processing fee that you have to pay.

So now that you know the main categories of rewards credit cards that are great for paying taxes, let's take a closer look at some specific examples of credit cards that fall into each of these categories. First, using a new rewards credit card to pay for your taxes can be incredibly valuable if you're able to use your tax payment to meet the spending requirement on a new credit card to earn the initial sign up bonus that that card offers.

For those of you who are very new to the world of points earning credit cards, a sign up bonus is just a one time points bonus, oftentimes between 50,000 and 150,000 points or miles that you earn when you first get approved for a new rewards credit card as long as you meet a specified amount of spend on the card within the first few months of having the card. Paying taxes can be a very easy way to meet the spend requirement on a new rewards credit card to earn a great sign up bonus in addition to the points that you would earn just from using that rewards credit card to pay your taxes.

I personally think that anytime you can use a tax payment to earn the sign up bonus on a new rewards credit card, it's worth it to pay the processing fee to make your tax payment by credit card. The reason is simple math. Anytime you're earning a sign up bonus on a new rewards credit card, you're going to be earning points at a high rate per dollar spent.

Here's just one example of how using your tax bill to earn the sign up bonus on a new credit card can earn you tons of points. One of my favorite points earning credit cards, the American Express Personal Gold Card, is currently offering a 90,000 point sign up bonus when you get approved for the card you spend $4,000 on the card the first six months you have it.

So let's say you have a tax bill that's $5,000, and you put that entire bill on the American Express Gold Card during the designated time period to earn the sign on bonus. The cost of that $5,000 tax payment with a 1.85% processing fee comes to a total bill of $5,092. The American Express Gold Card would only earn one point per dollar spent for that tax bill. So 5,092 American Express points. But since you'd be meeting the initial spend requirement to earn the sign on bonus for the card at the same time, you'd also earn the 90,000 points sign up bonus.

So, all told, your $5,092 tax payment would earn you 95,092 American Express Points, which is an earning rate of over 18 cents per point that you get using your new credit card to pay for your taxes. Not only that, but the value of just over 95,000 American Express Points can easily exceed the $92 processing fee that you had to pay to use the card to make that tax payment. 95,000 American Express Points can be used to book tons of different economy or business class flights worth $2,000, $4,000, or more, which I think is a great return for only paying $92 in processing fees in exchange.

Another example of using your tax payment to earn the sign up bonus for a new rewards credit card is a business card like the Chase Inc. Business Preferred credit card. This card is currently offering a sign up bonus of 100,000 Chase points when you spend $15,000 on the card the first three months after getting approved.

If you have, say, a $20,000 tax bill that would cost $20,370 to pay using a credit card when you factor in the processing fee. The Chase Inc. Business Preferred credit card would earn just one point per dollar spent on taxes. So if you use this card to pay your $20,370 tax bill, you would earn 20,370 Chase points, but you'd also earn an additional 100,000 Chase points for meeting the spend requirement to earn the initial sign up bonus for the credit card.

So, all told, you would earn 120,370 Chase points for your $20,370 tax payment, which comes out to earning almost six points per dollar spent, which is great. 120,000 Chase points can be used for flights or hotel stays worth far more than the $370 that it costs to pay the processing fee to earn those points by paying taxes with the credit card.

For example, you could use just 90,000 of those 120,000 Chase points earned from that tax payment to stay two nights at the Park Hyatt New York, and celebrate New Year's Eve in New York City, a stay that would otherwise cost almost $2,500, and you'd still have 30,000 chase points left over to use another time.

As you can see from these examples, tax payments are such a great opportunity to earn a ton of points quickly when you can use that expense to earn the sign up bonus for a new rewards credit card. This is especially true if your tax bill is five figures, multiple five figures, or even higher because you can use more than one credit card to pay your taxes. So you can actually earn more than one sign up bonus if you split your tax payment up between two or more new rewards credit cards.

Most personal rewards credit cards have an initial minimum spend requirement of anywhere between $500 and $6,000 in order to earn the sign up bonus. Most business credit cards have an initial minimum spend requirement of between $3,000 and $15,000 in order to earn the sign up bonus. Business credit cards tend to have a higher spend requirement than the personal credit cards do, but they also offer higher initial sign up bonuses than personal rewards credit cards do, for the most part.

So if your tax bill is several thousand dollars or several tens of thousands of dollars, you can easily meet the spend requirement to earn one or several sign on bonuses on new rewards credit cards just with your tax payment alone. If you want to leverage your tax bill to earn the sign up bonus on one or more than one new rewards credit card, the best strategy is to apply for a new rewards credit card about a month ahead of when your tax payment is due so that you have time to receive the card in the mail and have it in hand before you have to pay your taxes.

So if you're listening to this episode right now and you're disappointed that you won't be able to use your current tax payment that's due to earn the sign up bonus on a new rewards credit card, don't fret. Use this as an opportunity to start planning for what rewards credit card you may want to apply for in preparation for your next tax payment so that you can fully maximize your next tax bill to earn tons of credit card points.

Depending on how frequently you pay taxes and how much you pay in taxes, you might be in the situation where you don't actually want to rely solely on using new credit cards to pay your taxes in order to earn a sign up bonus. That's because this approach isn't as practical if you have very high tax payments. Because in order to fully leverage a tax bill of multiple tens of thousands of dollars every time you have taxes, you could theoretically need to apply for and earn four or more sign up bonuses on new credit cards each time you pay taxes. Even I don't think that sounds particularly appealing or sustainable.

That is where the second category of rewards credit cards that can be really useful for making tax payments comes in. Those are the airline or hotel cobranded credit cards that will allow you to use spend on those cards to earn status in their loyalty programs, or reward you with perks or benefits with certain increments of spend.

Now, unlike the first category of credit cards that we just talked about, the value of using an airline or hotel cobranded credit card to pay your taxes is not really in the points themselves that you'll earn. Though, of course, you will earn points and those will be useful. That's because an airline or hotel specific credit card will most likely only be earning you one point or 1 mile per dollar that you spend on your taxes. Rather, the value of using an airline or hotel credit card to make your tax payment lies in the value that you can get out of the specific benefits or increased status within that loyalty program.

One example of this is the World of Hyatt Business credit card, which allows you to use credit card spend to earn qualifying nights toward different tiers of status in their loyalty program, including the top tier of status, which is called globalist status. Globalist status with Hyatt Hotels is one of the most valuable top tier hotel statuses out there. It has allowed me personally to save literally thousands of dollars each year through benefits like suite upgrades, waived resort fees, free breakfast for up to four people, and free parking.

Normally, you are required to stay in Hyatt properties 60 nights per year in order to earn or maintain globalist status. But if you have a Hyatt credit card, your spend on that card will also help you earn qualifying nights that count toward that 60 night threshold. Because the World of Hyatt Business credit card awards you with five qualifying nights towards earning status in their program with every $10,000 that you spend on the credit card. This means that if you wanted to, you could actually earn Hyatt's top tier globalist status through credit card spend alone by putting $120,000 of expenses on the Hyatt business credit card in order to earn 60 qualifying nights, which would get you globalist status.

Now, I'm not suggesting that that's a particularly great strategy by itself to earn status since if you're someone who's not staying in Hyatt Hotels and earning any qualifying nights that way, then you're probably also not someone who's really going to benefit from having top status in their program just through credit card spend. But the point is, if you value top tier status in a hotel program like Hyatt, and you cannot qualify for that tier of status just with the hotel stays that you have planned for that year alone then using credit card spend to get you the rest of the way there can be a really strategic way to leverage an expense like a tax bill.

Another example of using your tax payment to help you earn status is with airline specific credit cards. Many airlines will reward you with certain perks, benefits, or status in their frequent flyer programs when you put certain increments of spend on their credit cards. For example, the City Advantage Executive World Elite credit card, which is one of the premium American Airlines credit cards, allows you to earn one elite qualifying loyalty point in their frequent flyer program for every dollar you spend on the credit card.

Additionally, it rewards you with 10,000 extra loyalty points when you spend $40,000 on the card in a qualifying year. So, if you paid a $40,000 tax bill with this credit card, you'd earn over 50,000 loyalty points in American Airlines frequent flyer program, which is enough to secure gold level status, which gives some really nice perks when flying American Airlines, including things like access to priority check in, a free checked bag, and priority boarding.

Now, if you're a relatively casual traveler and are not particularly loyal to any specific airline or hotel then using credit card spend to earn status in one of these loyalty programs probably is not going to be terribly useful for you. Instead, this approach of leveraging credit card spend to help boost your status makes more sense if these two criteria apply to you.

First, if you do prioritize flying with one particular airline or staying in one particular hotel chain and aren't trying to earn status from scratch with your credit card spend alone then using a tax payment to accelerate your path to status can make sense. Especially if you're just one status tier away from unlocking certain perks or benefits within an airline or hotel loyalty program that really appeal to you and that you would value having access to when you travel.

Second, if you tend to have high tax bills, meaning multiple five figure tax bills or even six figure tax bills, putting some or all of your tax payment on an airline or hotel cobranded credit card can be a great fit because using credit card spend to help earn status often does require significant amounts of spend.

Finally, even if you aren't going to use your tax payment to earn the sign up bonus for a new rewards credit card or leverage your tax bill to earn increased status in an airline or hotel loyalty program, you can still come out ahead by paying your taxes with a rewards credit card if you use a personal or business credit card that earns more than one point per dollar spent.

The good news is that there are many great rewards credit cards out there that offer 1.5 points or two points for every dollar that you spend that you can use to pay your tax bill, whether it's a few hundred dollars or lots of thousands of dollars.

Some examples of personal credit cards that are solid considerations for paying taxes include the Capital One Venture Rewards or Venture X credit cards, both of which earn two Capital One points per dollar spent, the Citi Double Cash card, which earns two Citi Thank You points per dollar spent, or the Chase Freedom Unlimited card, which earns 1.5 Chase Ultimate Rewards points for every dollar spent.

In the case of the Citi Double Cashback card and the Chase Freedom Unlimited card, these cards by themselves are actually cashback cards. But if you also hold a points earning credit card from the same bank, these cards can function as points earning credit cards as well. Now, which one of these personal credit cards is the best choice for you will depend on your personal preference for how you want to use your credit card points for travel as they each have their own set of airline and hotel transfer partners that you can utilize their points on to book travel.

Some great business credit cards that allow you to earn more than one point per dollar spent that can be fantastic choices for using to make a tax payment include the Capital One Spark Miles for Business credit card, which earns two Capital One points per dollar spent, the American Express Blue Business credit card, which earns two American Express Membership Rewards points per dollar spent up to $50,000 spent on the card in one calendar year, and the Chase Inc. Business Unlimited card, which earns 1.5 Chase Ultimate Rewards points per dollar spent.

Now, my personal favorite credit card for paying taxes is the American Express Business Platinum card, which earns 1.5 American Express points on all charges over $5,000, which is what we use almost exclusively to pay our taxes in my family. That's it folks. Those are the three main categories of rewards credit cards that can be particularly useful for paying your taxes, and a few examples of specific credit cards that fall into each category.

Before you go and make your final decision about which credit card to use for your tax payment, there are a few more things to take into consideration. First, if your tax bill is high or if it exceeds the credit limit on the credit card or cards that you want to use to pay your taxes, this is where using a charge card that earns points can come in very handy.

Charge cards differ from traditional credit cards in that they do not have a set credit limit, meaning that you can potentially charge multiple five figures or even six figures on a charge card at once, but you cannot carry a balance on this type of card. So you have to be sure that you have the liquid funds to pay off the balance in full at the end of your monthly statement.

Now, from listening to this podcast, you already know that you shouldn't carry a balance no matter what on any points earning card, but this is especially true of charge cards. Because they do not have a traditional set credit limit, charge cards can be really useful for paying single high expenses like a tax payment and not have to split up that charge over several different credit cards with lower credit limits if you don't want to.

American Express offers some great points earning charge cards that can be really useful for paying taxes, including the personal American Express Platinum or Gold card and the business American Express Platinum or Gold cards.

Another thing to consider is that while many of the rewards credit cards that I mentioned today that earn more than one point per dollar spent do not have any cap on how many points you can earn with them, some rewards credit cards do. So you'll want to make sure that you don't exceed those points earning limits on your credit card with your tax payment.

For instance, the American Express Press Business Blue Plus credit card that I mentioned that earns two points per dollar spent only earns at that rate up to $50,000 spent on the card per calendar year. Any expenses put on the card after you've hit the $50,000 limit would only earn one point per dollar spent. So you don't want to put more than $50,000 of expenses total on that card in any given calendar year.

All right, everybody, that covers just about everything that you need to know about which credit cards are best for paying taxes and what to keep in mind when choosing which card or cards you want to use for your tax payment. When it comes to earning points for paying your taxes, here is a quick recap.

First, there is a cost to paying your taxes using a credit card, but it can still be worth it if the value of the points you earn is higher than the cost of the processing fee you pay to use a credit card to pay your taxes. Second, if you do the math and determine that it's worth it to you to pay your taxes by credit card, make a plan to leverage your tax payment so that you can earn the most points or get the most value from rewards credit cards possible with your tax payment.

Third, if you have very high tax payments, there is an opportunity to leverage that expense by using more than one credit card to pay your taxes so that you can potentially earn several sign on bonuses or use your tax bill to help you earn increased status in an airline or hotel loyalty program that you value. Finally, even if the timing isn't right for you to leverage rewards credit cards for this quarter's or this year's taxes, use the information here to help plan for how you can maximize your points earning on future tax payments.

All right. I hope the information in this episode and last week's episode has started to change the way that you think about paying your taxes, especially if you have high tax bills. I know that it has really taken the sting out of paying taxes for me knowing that my taxes now earn me enough points for a fantastic business class flight somewhere. I hope that rewards credit cards will change your relationship to your tax bills too. So, happy tax day, happy points earning, and I'll see you all here again next week. 

Thank you for joining me for this week's episode of Point Me to First Class. If you want more tips on turning your expenses into travel, visit pointmetofirstclass.com to learn more. See you next week.