How Tax Payment Systems Work with Card Points
Some credit card providers integrate tax payments into their rewards programs, allowing users to pay taxes using points. However, this system does not operate directly with government agencies such as the IRS or HMRC; instead, it works through intermediary platforms. For example, in the US, websites like Plastiq or Pay1040 offer ways to use card points indirectly for tax payments.
The ability to pay taxes directly with points typically works as a “statement credit,” meaning the amount is refunded to the account. The cardholder first pays the tax in cash or with a credit card, then uses points to cover the payment amount. This technically means paying taxes with points, but the order of the transaction is different.
American Express makes Membership Rewards points available for use in some third-party payment systems through its “Pay with Points” feature, but tax payments are not always included in this. The scope of use may open and close with seasonal campaigns.
The Hidden Costs of Using Points for Tax Payments
Tax payments made with card points generally incur a transaction fee of between 1.85% and 2.49%. This rate can add up to a significant cost depending on the amount of tax. Therefore, if the value obtained by using points is lower than the transaction fee, paying with points becomes illogical.
The value of points may decrease when used for tax payments. For example, Chase Ultimate Rewards points are worth 1.5 cents when used for travel reservations, but only 1 cent when used for tax payments. This means that the same points can have different values depending on how they are used.
While it may seem logical to accumulate points for large transactions like tax payments, these payments are typically excluded from “bonus categories.” This results in a lower points earning rate. For example, a card offering a 3% cashback bonus on grocery purchases may only offer a basic 1% rate for tax payments.
Only Certain Cards and Programs Offer Points for Tax Payments
Capital One allows you to earn points on “government services” such as tax payments, but the points can only be used after spending, which may limit your ability to redeem points for tax payments. American Airlines AAdvantage can earn miles even on tax payments with its points-earning cards. However, the value of these miles typically ranges from 0.7–1 cent, which does not provide enough return to offset high transaction fees.
Discover and some Visa cards do not consider official government expenses such as tax payments as “cashback eligible.” This means you cannot earn points or cash back on such payments. This rule is buried in the fine print of the card agreement and many users are unaware of it.
Indirect Tax Payment Strategies Using Point Transfers
If it is not possible to pay taxes directly with points, some users transfer their points to platforms like Amazon and purchase gift cards. They then use these gift cards to cover other expenses, effectively paying their taxes with free cash flow. In this way, points become an indirect tax payment tool.
Some airline or hotel points, even if they cannot be converted directly into cash, provide liquidity through gift cards thanks to systems affiliated with PayPal. This allows you to create a chain of “points → gift cards → cash savings → tax payments.”
Using Points for Tax Refunds – The Reverse Strategy
In the US, some tax software offers campaigns where users can receive gift cards in exchange for tax refunds. For example, TurboTax or H&R Block may offer an extra 10% bonus when they give you an Amazon gift card instead of directly depositing your $1,000 refund into your bank account. This gift card can then be used as a balancing tool for purchases made with your credit card points. This system doesn't work like a direct tax payment; it's the opposite: you use points to increase your refund amount. This means you can get more value from the tax system without spending your points.
Special Campaigns for Using Points During Tax Season
Some banks offer temporary campaigns during tax season that allow you to pay taxes with points. For example, Citi or Amex may occasionally launch a “use points for tax payments” campaign during the March-April period. However, these promotions are short-lived and have detailed participation requirements.
These promotions typically include conditions such as a minimum point usage requirement, a campaign code, or the use of a specific payment provider. If these details are overlooked, points cannot be used, and the transaction must be completed in cash.
Why Don't High-Income Users Want to Pay Taxes with Points?
Although using points for tax payments seems advantageous in theory, cardholders in the high-income group generally do not opt for this method. The main reason is that it makes much more sense to use points in areas with higher returns, such as travel, first-class tickets, and luxury hotel stays.
For example, 100,000 Membership Rewards points are only worth $1,000 when used for tax payments, but they can be worth over $4,000 when used to purchase business class tickets on airlines like Emirates or ANA. This difference makes spending points on taxes a “poor investment.” Additionally, some high-tier card users prefer to use separate corporate cards or bank accounts for tax payments to keep their personal point balances independent from such expenses. This is also part of a point optimization strategy.
Legal and Accounting Complexities
Using points for tax payments can create gray areas in accounting. Especially when business owners or freelancers use points related to business expenses for personal gain, tax authorities may consider this as “personal income.”
In the US, the IRS does not take a clear stance on whether reward points are taxable; however, when points are converted to cash or used as gift cards, such transactions may be reported as “income” in certain cases. Some company accounting departments classify credit card points as “company assets.” If the tax is paid with the card and the points are used personally, this may constitute an indirect transfer of income to the employee. Such situations may cause problems in future audits.
The situation may vary in international tax systems
Outside the US, the use of points to pay taxes is much more limited. In the United Kingdom, direct use of points for HMRC payments is not permitted, but some fintech intermediaries (e.g., Curve) enable indirect accumulation of points.
In Canada, points cannot be used for Revenue Agency payments, but some Canada-based cards (particularly TD and RBC) may offer extra points for government-related transactions such as tax payments. However, these points still contribute indirectly rather than directly to taxes. In Australia, point accumulation is generally restricted for ATO (Australian Taxation Office) payments. Card providers such as American Express and Visa block point earnings from this category by separating “government services” into a distinct category.
Strategies for Earning Points by Paying Taxes
Some users prefer to pay their tax debts with a credit card solely to earn points. They then pay off their credit card balance immediately to avoid interest or additional fees. This is a risky but conscious “point farming” technique.
For large tax payments, a strategy can be employed to split the payment across different cards to earn “sign-up bonuses” from each. For example, a new card with a $4,000 minimum spending requirement is opened, the tax is paid with that card, and the bonus points are earned. This is not a direct payment with points, but a creative way to earn points through taxes. Some finance bloggers find such “spending generation” strategies ethical and efficient, while others argue that these methods could run afoul of tax or card company rules in the long run.
Is it possible to pay taxes with points without transaction fees?
In a few rare cases, paying taxes with points without transaction fees has been possible. For example, in previous years, Chase offered some users a special campaign allowing them to use Ultimate Rewards points directly through Pay1040.com with a 0% transaction fee. However, such campaigns are extremely limited in time and conducted through invitation-only systems.
Additionally, some corporate card customers have been able to use intermediary links that do not charge transaction fees for tax payments through special agreements with their banks. However, this does not apply to individual users and is not publicly available information.
Common Mistakes People Make in This Area
Many users fall into the misconception that using points to pay taxes is “free.” However, these transactions often involve transaction fees, low point values, or post-tax accounting issues. Choosing this option to “not let points go to waste” can lead to greater losses in the long run.
Some users make incorrect calculations by confusing tax payments made with points with other bonus spending. For example, a user may think they are receiving 5% cashback, only to later discover that this payment category is not included in the campaign.
Future Legal Assessment Risk of Points Used for Tax Payments
In markets like the US, where financial regulations frequently change, an application that is currently in a gray area may be deemed illegal tomorrow. Points used indirectly for tax payments are currently among the benefits that do not need to be reported. However, in the future, the IRS may introduce separate reporting requirements for individuals who use large amounts of points.
Credit card providers can apply their own discretionary decisions in their point programs, meaning that tax payment campaigns that were previously available can be suddenly discontinued. For example, in 2021, some cardholders earned points on tax payments, but by the end of the year, this category was declared ineligible for bonuses. This left users who had built strategies around this feature in a difficult position. While the IRS does not officially prohibit tax payments made with points, it may consider transactions that generate “gains” for high-volume users as income. This could create problems in the future, especially for points used as “cash equivalents” (gift cards, cashback, statement credit).
Ways to Take Advantage of Credit Card Campaigns During Tax Season
During tax season, some banks launch temporary cashback or bonus mile campaigns to encourage users to make transactions. For example, Citi or Chase may offer +2x points on spending in the “government payments” category. However, these offers are often exclusive to email invitations and not available to the general public.
Some premium cards in the UK (e.g., American Express Platinum UK) offer additional benefits like extra Avios points or lounge access to users who meet certain spending targets on large transactions, including tax payments. This isn't direct payment in points but a way to turn the tax season into an advantage. Additionally, some banks offer a one-time points bonus to users who add their credit card to a tax or bill payment system to promote their automatic payment systems. While this is not directly related to taxes, it is an “indirect benefit” gained during the process.
Using Points for Tax Payments – A Limited but Strategically Valuable Area
Although the use of card points for tax payments is a limited, technical, and often financially controversial area for the general public, it can provide strategic advantages for conscious users. The value obtained from this system can be maximized with proper timing, campaign tracking, and point value analysis.
However, the biggest mistake made here is to act with the mindset of “I have points, I should use them.” In reality, points can generate much higher value in different usage areas (travel, transfers, promotions) while offering a low ROI (return on investment) in areas like tax payments. As a result, paying taxes with points is a benefit that works in only a few specific cases but is often misunderstood. It can be considered a limited yet creative area for users with clear financial goals and a good grasp of the details.