Paying with Debit Cards

If one has a debit card that provides cash back, it may be beneficial to process income tax and estimated tax payments via debit card.

<aside> 💡 Paying taxes with debit cards can result in cash back, but note that there are usually limits on purchases per month

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For example, Discover provides 1% cash back for debit card purchases; but this is limited to $3000 of purchases per month (as of May 2022).

Note that, since the cash back limit is per monthly basis, one can spread payments across different months for each tax quarter. For example, in the same calendar year, one can pay $3000 on February, $3000 on March, and $3000 on April to obtain $90 cash back (1% of all $9000).

Paying with Credit Cards

Personal tax payments can be submitted by mail or online using bank account, debit card, and credit card. For most individuals, the credit card payment choice has not been beneficial due to the IRS’ high credit card fees (around 2.99%). However, for 2022, the credit fee has decreased for tax payments:

Processing fees for tax payments (last updated Mar. 20th, 2022)

For 2022, Pay1040 charges a fee for only 1.87% (minimum $2.50). The recent decrease in credit card processing fees results in a nice perk for users of credit cards that provide cash back and/or travel rewards.

<aside> 💡 Paying taxes with credit cards can result in greater cash/rewards due to recent decreases in credit card payment processing fees

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For example, the Fidelity Rewards Visa Signature card and Capital One Venture card have 2% cash and travel rewards respectively; using either card would result in an extra 0.13% return from tax payments.

Tax payments of large quantities can be a decent way of reaching minimum needed purchases to achieve welcome bonuses for credit cards.

<aside> 💡 Tax payments can be used to quickly reach minimum purchase amounts for credit card welcome bonuses

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