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.