Reader Gail asks,
I have a lot of taxes to pay – which credit card do you recommend, if any?
I pay taxes using my Suntrust Delta debit card… less than $3 for the payment, earns 1 Delta mile per dollar. Sadly that’s no longer available. You can still get an American debit card that earns 1 mile per 2 dollars and gets the low debit card fee. However they won’t process large charges the way Suntrust will with its $35,000 per day transaction limit.
Credit cards, though, are too expensive to process to make paying with those worth it for the miles, but it can be worth it as a way to meet minimum spend for a big credit card signup bonus.
You’ll pay at least 1.87% of your tax bill as a fee for making the payment on a credit card (e.g. from PayUSATax). OfficialPayments.com and Pay1040.com both charge 2.35%.
If you make sure you’re using the low-cost provider, you can earn a small margin — a 2% cash back card will net you 0.13% of your tax bill. A card like Barclaycard Arrival+ nets you 2.2% towards travel, so if you’re willing to redeem for future travel through their system you can net as much as 0.33%. That’s a really small margin, and requires trading cash for future travel, a tradeoff I wouldn’t make. Perhaps if you’re tax bill is big enough, but even a $100,000 tax bill will net just $130 margin with a 2% back card.
A big payoff like a signup bonus changes the equation. Paying 1.87% on a $3000 charge to meet minimum spending means you’re out of pocket $56.10 — well worth it for 40,000 or 50,000 miles if you would not otherwise meet the spend requirement.
The other time it can make sense is to earn threshold bonuses. For instance, you may want to hit $40,000 in spend on a the Citi American Executive card for 10,000 elite qualifying miles or on the Hyatt Visa for 5 stays and 10 qualifying nights towards Diamond elite status. $40,000 on either the Citi Hilton Reserve or American Express Hilton Surpass card will net you Diamond status in the Hilton HHonors program.
The $748 cost for $40,000 in charges (you’ll only need to charge what you can’t spend on your own of course) could be worth it for 10,000 elite qualifying miles with American considering that flying that many miles will likely cost you at least that much — not to mention about 20 hours of your time in the air.