Why You Might Want to Overpay Your Taxes

In 2012, for the first time ever, I intentionally overpaid my estimated taxes.

Why?

Since this is a miles and points blog, I bet you can guess that it has something to do with earning miles and points.

Whatever you overpay on your taxes (regardless of form of payment) gets returned to you in a check or direct deposit into your account.  It’s an opportunity to earn some miles and points with a minimal cost.  Last year, I overpaid taxes in an effort to help reach the minimum spend on some of my credit cards.

By the way, I’m not a tax accountant, and this is not tax advice.  You may want to seek out the advice of a certified tax professional.

The Overpaying Taxes Strategy

Most of the companies will allow you to use their service to make two payments per quarter.  Sometimes you can call and make more than two payments through each company.  What I did in 2012 was made my overpayment in the final quarter (January 15th, 2013 deadline).  That way I knew I’d have the shortest time to wait to get my refund. Depending on how many transactions you plan to make each quarter, it might be something you’ll want to start doing sooner rather than later.

Service ProviderDebit Card FeesCredit Card FeesMajor Credit Card Methods Accepted
Official Payments Corporation$3.95 Flat Fee2.35%AMEX, Visa, MasterCard, Discover
Choice Pay$3.48 Flat Fee1.88%Visa or MasterCard
Pay1040.com$2.99 Flat Fee2.35%AMEX, Visa, MasterCard, Discover
Pay USA Tax$3.49 Flat Fee1.89%AMEX, Visa, MasterCard, Discover

Does the math work out?

I’ll give you a few examples so you can see how the taxes can work out on this.

Use a mileage earning debit card to pay your taxes.

I have a UFB Direct debit card.  For a $2.99 fee, I can earn one AAdvantage mile per 2 dollar I spend.  Explore other mileage earning debit cards.

Use a credit card directly on one of these sites to meet a minimum spend you otherwise couldn’t meet.

My wife has the British Airways Visa card that offers a bonus 25,000 Avois for spending $10,000 in the first 12 months of card membership.  Spending $10,000 would be tough for us.  Our best option for paying with a credit card would be to pay a 1.88% fee.  It would cost $188 to make a $10,000 tax payment.  $188 could seem steep, but a person with this card would end up with 37,5000 Avios (12,500 for spending $10,000 at 1.25 points per dollar, plus the 25,000 bonus spend) which is well worth $188.00.

Buy debit cards at a local store and ‘cash out’ the cards for your taxes.

Last year, I purchased $500 Vanilla gift cards with my Ink Bold at an office supply store for a total of $505.95.  I then used that debit card to pay taxes at a $2.99 fee.

The end result was that I earned 2,525 Ultimate Rewards at a cost of $8.94 or 1/3 of a cent each.

Now that office supply stores aren’t selling $500 cards, the opportunity isn’t so sweet.

However, I currently have a Citi card that is offering 5x at grocery stores.

I could use that card to buy a $500 card at my grocery store.  The gift card fee is $5.95 plus the $2.99 processing fee to pay the taxes.  For $8.94, I’d end up with 2,500 Thank You points.  Those points can be cashed out for a $25 gift card.

Buy debit cards online and cash them out on your taxes.

Using TopCashBack, you can get 1.5% cash back buying American Express Gift Cards.  You’ll probably want to click on prepaid business cards.  Once you arrive at the American Express Gift Card landing page, the highest currency gift card they’ll let you buy is $500.  Then you scroll all the way down to the bottom and click on “Gift Cards” in the bottom navigation menu.  On that page, select “Business gift cards”.  Then click “order now” and you can buy up to $3,000 worth of gift cards.

The total cost is $3.95 for a $3,000 gift card.  Shipping is $8.95 (I don’t suggest using a coupon as TopCashBack says that might not allow you to earn the cash back).  Thus, for $12.90 in fees you’ve bought a $3,000 American Express Gift card.  However, you should get $45 cash back.

Now visit PayUSAtax.com (the lowest American Express credit card fee), and it will cost you 1.89% in fees.  Thus, you’ll pay $56.70 in fees.

As long as everything works as planned (sometime people complain that TopCashBack doesn’t award the bonus), you’ll have paid $24.60 to get a $3,000 spend on your credit card.

Comments

  1. Pawel says

    thanks for this tip :

    Once you arrive at the American Express Gift Card landing page, the highest currency gift card they’ll let you buy is $500. Then you scroll all the way down to the bottom and click on “Gift Cards” in the bottom navigation menu. On that page, select “Business gift cards”. Then click “order now” and you can buy up to $3,000 worth of gift cards.

Leave a Reply

Your email address will not be published. Required fields are marked *