For a while, the site OfficialPayments.com has been offering people a way to pay a variety of federal, state, and local taxes with their credit card. While you can earn rewards for doing so, the 2.49% processing fee usually canceled everything out. Enter the Citi Cash Returns MasterCard, which offers 5% cash back on purchases for 3 months, with no caps or limits. (Update 4/23: Promotion has changed.)
The trick is then to load up your card as much as you can during the promotional 3 month period. In this case, if you used Official Payments to pay your tax bills which you used to pay by bank account, you’d stll be left with 2.51% of profit on your tax payments, or $251 for each $10,000 in taxes paid. This is especially applicable to me, as I underwitheld my taxes (without penalty) in 2007 by at least $10,000.
Who Else Can You Pay This Way?
Besides federal income taxes and estimated tax payments for sure, there are actually a good variety of options:
Official Payments is the trusted payment services partner of the United States Internal Revenue Services, 25 state governments, the District of Columbia, more than 2,500 local and municipal government agencies, more than 400 colleges and universities, and other public and private interests in all 50 states.
Use the the Who Can I Pay? and enter your zip code for the full list in your area. Being able to pay state income taxes online would be worth at least another $100 in my pocket…
Something More Controversial…
If you’re like me and you know you’ll owe some amount by April 15th to settle your tax bill and avoid late-payment penalties, why not just play it safe and overpay by a safe margin? Then you can file a tax return extension until October 15th and file your actual return at your leisure later on. When you do, you’ll simply be refunded any overpaid tax amount. This is what I had to do last year anyway, even without the carrot of instant 2.51% return on my money.
Timing The 3-Month Window
I’ve been waiting for a good 3-month window where I can max out this card. Given this tax situation and also all my upcoming new house expenses – home improvement, hardwood floors, furniture, moving, etc. – I think the timing is right. I applied tonight, but didn’t get an instant decision, most likely due to my recent move. I’ve been taking it very light on the credit cards lately, so I see no reason not to get approved. 🙂
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I did this last October (on your advice- Thanks!). My only word of warning is that the 3 months begins from the day you applied for the card, not from the day of your first purchase or when the card arrives in your hands. I earned a little over $1000 & was able to charge most of my sales taxes at the end of the year to get the rebate.
I timed the 3-month time frame for school (books, exam fees), wisdom teeth removal, and other planned purchases of considerable size. Of course, I paid the rent with it too!
Does anyone know of a similar site that will let you pay your mortgage in the same way? I’d love to get either points or a cash refund for paying my mortgage!
“I’ve been taking it very light on the credit cards lately, so I see no reason not to get approved.”
That is, unless someone at citibank reads your blog ; )
Great advice!
I just applied and got approved for about $3500. I also owe taxes this year (around $12k) – can I make several payments to the IRS,
so pay first $3.5k, pay it off, pay again $3500 etc . ?
Could someone help me understand how this works with TurboTax? Can I use TurboTax to calculate my standing and file, but NOT to pay what I owe?
Hi, This question is related, but not exactly on topic.
I’m at college at a university that does not accept credit cards as a method of paying for tuition. I would love a way to get around that problem and thereby earn cash back/miles and other perks on a credit card for paying my tuition.
Ideally, I would still take out my loans, have them funded directly to me, rather than going to the financial aid office, and then i would use those loans to pay the credit card.
Do you know of any providers like Official Payment that offer similar services for educational payments?
The thing about the link that states that rebates generally aren’t likely to be taxed is that generally you already paid taxes on traditional rebates, such as in the store, buy $100 item, pay taxes on that $100, get $20 mail-in-rebate, but not the taxes back on that $20. Credit card rewards seem a bit different since it is money or credit back on top of any purchases, but I guess you could call it all rebates.
What I’d like is to own my own ‘Official Payments’ and make 2.49% on whatever everybody owes to the IRS. What a great business! Is that a private company or owned by the government?
Due to circumstances to the good, I would up severely underpaying my taxes this year. However, I paid just enough estimated tax to the state and feds in the fourth quarter to avoid (I hope) any tax penalties. Still owe even after those payments. In any case, you are required to pay 90% of what you owe this year or 110% of what you paid (owed) last year. In my case, with the 4th quarter estimated tax payment, I paid 110% this year of what I owed last year.
Congrats to all the people who made out well. I hope to join you all soon. 🙂
mimi – Well, OfficialPayments has to pay the transaction fee to Visa/Mastercard/AmEx which is close to 2%, so they don’t quite make 2.5%. But yes, I’m sure they still do quite well with the volume.
mc – Isn’t it 100% of what you owed last year? Previous post:
How To Underwithhold Taxes Without Penalty
Can you re-apply for this card?
I got one last fall to time with Xmas shopping but the 3 month window has passed. If I can’t get another, can I change my CashReturns card to a different card type and apply again? That 5% CB was sweet.
For J Miner,
If you choose to have the loans go straight to you I believe most likely you will be faced with taking out private loans (As opposed to Federal loans with a smaller rate). I would not recommend this as I doubt you could get enough benefits from a credit card perk than from a lower rate.
I signed up for this card about 4 months ago. I was able to rake in over $3300 in cash back since I run my own small business. I believe PayPal fees are less than 5%, so unethically one could send money to a friend, get that money back from his/her friend, and come out ahead with the cash back after paypal fees. I didn’t do this, but it is interesting that it could be done.
Another good way to max out this deal is to buy gift cards to places you know you are going to be using even after the 3 months is up. If I know I am going to be spending money at the grocery in the future, why not go ahead and purchase a $1000 gift card at the grocery. Also great for fast food or department stores.
I just got my first $50 check in the mail today. I used the card to pay my auto insurance bill and then used the money I’d saved and will pay off the card balance. I need new tires for my car so it looks like the time to do it.
It is 110% if your gross income is over a certain amount. Don’t remember the exact figure at the moment. We were over that amount. Believe that is correct. If you are under it is 100%.
mc – You are correct. As long as your withholding is at least 100% of your 2006 taxes and your AGI was under $150k, you will have no penalty no matter what your taxes due for 2007 are. If you make over $150k, you need 110%.
May want to consider the fed “rebate” when underwitholding taxes. It may count as an advance on 2008 tax refunds. If you’re underwitholding then the amount owed may increase by the amount of the “rebate”.
If you run out and and spend this money as a “good consumer” you could be hurting at tax time owing an extra grand or two.
I’m sure most readers of this blog will be saving it and some will consider it a way to extend the amount they get from underwitholding their taxes without penalty. 🙂
Doesn’t the government charge a fee for paying taxes by credit card? What is the url for the payment site?
Nevermind my previous comment. I just re-read the post.
I do my taxes with H&R Block and I can pay via credit card, no processing fees what so ever. I don’t own Citi card, but I have Chase 3% on everything 3 top categories. I guess I will be getting my 3% on my tax bill.
I have H&R coupons for $20 off, if anyone wants to do their taxes with H&R Block. You can e-mail me by clicking on my name.
Be sure to call customer service and verify that you are infact getting 5% back.
I signed up for the offer 3 months ago and noticed that i was not getting quite as much as i expected back. Called customer service and found out that they were only giving me 4% back ( don’t know where they came up with that number). I’m trying to remedy the situation right now.
Finally spoke to someone who was pleasant and actually willing to help (they have some obnoxious people on today- have never had an issue until today). Turns out that its 4% for 3months on top of the regular 1%, making it 5% total for the first 3 months.
Thanks for the tip Jonathan! Applied and was instantly approved for $3600!
I almost fell off my chair when I saw Rick’s note. I called Citi and am here to comfort all those who might be in a similar situation.
Your Citi online CC site might show a 1% “reward” but the “extra” 4% will show up on your statement.
Nevertheless, it would not hurt to call and confirm because Citi clearly states that “Unless you are participating in a limited-time promotional offer, you will earn 1% on all purchases”
Tips on using the 5%. Besides the good tip that the 3 months start on the day of the application you have to be a little careful the last month of use. Since the wait until you have $50 of rewards to send a check AND they send the check automatically then you really have to spend over $1000 the last month (if you got a check for month 2 already) or you will then have to continue to use the card at 1% back to reach the $50 level (lots more use then necessary).
Example:
Month 2 you earn $65 in money back – they will send you a check for $65 and then reset the points. So you start again month 3 and will need at least $1000 in spending to reach $50.
If in month 2 you only earned $45 then you are safe – would just need at least an additional $100 in spending to reach $50 – you can go over all you want and the full amount will be mailed to you automatically.
Interestingly, I called them and they refused to provide anything in writing that would verify the 5% back for 3 months. They were really kind of jerks about it. Everything in the world in the fine print to protect their interests, but nothing to protect the consumers. He said they recorded calls which should provide verification enough… ha!
I told him of my intention to pay my taxes and he said to be sure they process it as a “purchase”. If the tax people consider it a cash advance you get a whopping fee charged on.
2008 is the first year I’ll have to pay quarterly estimated taxes, so I’ve been mulling this over since the original post (scary, I know).
Q1 Est Tax payment is due on/about April 15th for Federal and State (in my case, Virginia isn’t due until May 1st).
Q2 Est tax payment is due on/about June 15th
So the best way to time this is to probably get the card just before Q1 payments are due, and pay both Q1 and Q2.
Q3 isn’t due until September 15th, but I suppose you could pay it early if you were so inclined.
Does anyone have feedback on time between when they applied and when they actually received the card?