Paying and overpaying your federal taxes for fun and profit

So, you need to hit a spend on a credit card with a great sign up bonus, but you are straining to hit the spend requirements. You can, for a price, pay your federal taxes with a credit card. Here are the rules and caveats of using this technique:

Paying your personal and business taxes

1. The two credit card processors authorized by the IRS are ACI and Pay1040. Read carefully the fees charged and be aware that different rates apply to different cards such as VISA vs AMEX.
2. If you want to pay your personal taxes with a business card, use ACI and pay via Paypal with your business credit card as the selected source. You should get the consumer rate and not the business rate (which is higher).
3. You can make two payments per processor for your quarterly obligations and two payments per processor for yearly tax obligations.
4. Rates for ACI start at 1.85% and Pay1040 start at 1.75%. Key words are "start at" so review the processor charges before completing the transaction (especially Pay1040 transactions).
5. A portion, if not all, of your fees can be offset just by the transaction points earned off of the credit card you are using to pay your taxes. The sign up bonus is, therefore, mostly on top.

Overpaying your taxes

1. If you overpay to meet a spend, you have to wait for the IRS to receive your tax return and process a refund. This can be a few weeks or it can take several months. After 45 days from filing, the IRS will pay interest (7% annually compounded daily) if they have not issued you your refund. I recommend having enough cash on hand to pay off the card when the next statement with the tax charge comes or pay the taxes with a 0% APR introductory rate card. I have a HELOC available in case my refund is delayed (which has happened to me).
2. I would not overplay this technique as a huge refund could be cause for review and possibly an audit.

Conclusion

Paying you taxes with a credit card can create an easy manufactured spend that is more than offset by sign up bonuses and points earned. You should hope for a quick refund but be prepared for a delayed one. It once took me seven months to get my full refund so don't get stressed as the IRS didn't forget you; they just have a lot on their plate.