Paying taxes each year (or quarterly for you small business owners) is a psychological pain - you know you got an “interest-free loan” from the government, but at the end of the day, you still hate paying hundreds if not thousands of dollars all at once.

With credit cards, there is the bright side - and I’m not just talking about using credit cards to pay the taxes you owe. By overpaying your taxes you could earn even more points, without spending any extra money, yes legally, I’ll explain.

Let’s start with the basics

The IRS recently updated their tax processors and fees. You can pay your taxes by credit using two different processors with their fees listed below. You can see that both of these processors charge less than a 2% fee - which means you can make a .25% or .15% profit just by paying with a card that earns 2% back. Take a quick look at the math at the bottom. If you use a new credit card with a sign-up bonus, you could earn hundreds more - for making payment you already need to make.

But wait, there’s more!

Did you know if you overpay the government in taxes, you actually get that money back - aka a refund. So imagine if you only owed $1,000, but you overpaid $6,000 to complete a Chase Ink Unlimited bonus. You would gain 75,000 points from the bonus and 9,000 points from the spend. A total of 84,000 points for $1,105 ($1,000 of taxes, $105 processor fee) is an 76% return on spend just from cashback. Now imagine you used those points at 2cpp at a Hyatt? Now you’d be making way more value than what you spent.

How long do I have to float the money?

This was the question I had last year - because I didn’t want to overpay too much and float the money to the government too long. From data points online it didn’t seem to take that long, but I wanted to try it out myself.

I made my tax payment on April 10 - just overpaying by $50 just to test things out.

I received the check in my mail and deposited straight away on May 8. So it was just less than a month float - basically in time for my credit card balance.

But wait, there’s even more!

Not only was I working on a bonus for last year’s tax payment, I also was using a card with 0% APR for 12 months. So, as of this newsletter publication, I still actually haven’t paid off the card in full yet with my tax overpayment - I have just made the minimum payments.

So not only did I profit from the bonus points - the money meant for the tax payment has been sitting in a money market earning ~4% interest from this past year. Now I will withdraw it and pay off the tax payment from a year ago.

The Basic Math (Appendix)

Say you owe $1,000 of taxes this year. If you pay by credit card and use the Pay1040 Processor, you’ll end up paying a total of $1,017.50.

• Using a 2% card, you’d net 2,035 points which is equivalent to $20.35 if redeemed for cash - profiting $2.85

• Using a new Chase Ink Unlimited which essentially gives 14% back on the first $6,000 - you’d net 14,245 points which is equivalent to $142.45 if redeemed for cash - profiting $124.95

What’s In our Wallets (Newsletter Exclusive)

Our lineup for this week is below. See our rationale here just for newsletter subscribers like you.

Matthew: World of Hyatt Business

Sarah: Delta Gold Business

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About WuhooPoints

WuhooPoints focuses on the credit card consultation side of Wuhoo Group. We help you unlock the power of your credits cards for free luxury travel.