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Taxes and credit cards
March 27, 2014 10:22 PM   Subscribe

I owe the IRS a not-insignificant chunk of change. Is there some way I could benefit from this?

I have the funds to pay what I owe, and I've been planning to have the sum deducted from my checking account. However, I was wondering if it might be in my interest to apply for a credit card with a high sign-on bonus after a large initial transaction. I realize that I'd be paying 1.87% extra in order to pay with a credit card, but if the cash incentive combined with any cash-back percentage is favorable enough, it seems to me like it could be worth it. I have a modest income and very good credit.

I've been looking into the Barclays Arrival card, which offers 2x points per dollar and a generous bonus after spending $3K in 90 days, but the problem is that I'd rather have cash-back than travel miles.

Is there anything I'm missing? Is this a bad idea? Assuming that I will immediately pay off the amount I owe and won't carry the balance, are there any other pitfalls to be aware of?

Thanks in advance.
posted by null14 to Work & Money (8 answers total)
 
Most of the cards that offer the highest rewards also come with an annual fee. Watch it.
posted by valkyryn at 10:27 PM on March 27


I realize that I'd be paying 1.87% extra in order to pay with a credit card, but if the cash incentive combined with any cash-back percentage is favorable enough, it seems to me like it could be worth it.

Is the total incentive greater than or less than 1.87% of what you're paying? Sit down and write out a table of what you're paying, including all fees, against what cash-back, points or other bonuses you'd get and their cash value.
posted by Blazecock Pileon at 10:28 PM on March 27 [2 favorites]


It seems that 2% cash back on purchases is the max reward out there and that is generally on cards with a $100+ annual fee and usually have cash back "tiers" eg. 1% back for $0-5,000/ year 1.5% for $5,000-20,000 and 2% for all purchases after $20,000. You would have to owe the IRS *a lot* of money to make this work for you and even then you are looking at 0.13% cash back. That hardly seems worth it.

For air miles/travel rewards it would depend on what your future travel plans are. You can look up what the average value of each type of point is worth (like United Miles, or HHonors points etc). Maybe you will come out ahead? If you didn't have to pay the credit card surcharge this would be a great plan. As it stands, I am not sure you have a lot to gain.
posted by saradarlin at 11:32 PM on March 27 [1 favorite]


I had the same thought about paying my mortgage on a credit card, and then paying the card off each month. It turned out the credit card rewards program specifically exempted my brilliant idea. I would not be surprised if the fine print also exempted earning rewards by using the card to pay your taxes.
posted by COD at 4:49 AM on March 28 [4 favorites]


Cash back usually isn't your best bet, though some 'mileage' cards (i.e. Chase Sapphire) will let you buy Amazon, for which for me is basically same as cash.

This guy has all your tips you want. http://thepointsguy.com/2014/03/tax-time-pointers-earning-points-on-taxes/

Basically, if you're not a big spender, paying your taxes from your credit card and using big sign on bonuses is a great idea. Otherwise, you can probably keep that 1.8%.
posted by sandmanwv at 6:02 AM on March 28 [1 favorite]


I'd check MMM's guide.
posted by devnull at 6:20 AM on March 28


I'm pretty certain that paying taxes would be be excluded from rewards. I've been paying back taxes via my debit cars and it shows up as two transactions. One for the amount I paid, the other for the fee. If anything you might get points for the fee.
posted by birdherder at 7:20 AM on March 28 [1 favorite]


I've done this once. I had a card that gave 2% cash back and had 0% APR for a year (and at the time I had a checking account giving 2% interest), even so it only seemed barely worth it.

The other time I'd say it is worth it is if you are trying to meet the minimum spending requirement for a credit card with a large sign up bonus. Some of the better cards out there right now will give you a sign up bonus worth $500+ if you spend a few thousand in the first 3 months. (e.g. Ink Bold or SPG Amex)
posted by vegetableagony at 2:11 PM on April 14


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