Maximize Your Rewards: The Little-Known Pitfall In Paying Your Taxes By Credit Card
Tax day is right around the corner, and so is the year’s first quarterly Estimated Tax deadline of April 15th.
Many people pay their taxes due via credit card. It can be worth it for earning credit card initial bonuses, threshold spending bonuses and credit towards status, and for high rebate cards even just earning the spread between cost and reward value. E.g.
- Pay1040.com charges 1.87% for credit card payments and a flat $2.50 for consumer debit card payments.
- PayUSATax.com charges 1.82% for credit cards and $2.14 for debit.
Once wrinkle that isn’t usually mentioned by blogs and other sites talking about the opportunity to get something back for your tax payments is that the IRS publishes a limit of:
- 2 payments per year for form 1040 tax due
- 2 payments per quarter for form 1040-ES estimated taxes due
In practice I’ve never heard of anyone having problems making more than two payments. Each of the online payment services limits you to two payments, but you can make two apiece at OfficialPayments.com, PayUSATax.com, and Pay1040.com.
It turns out as far as I can tell that there is no penalty imposed for making more than two payments. Instead, the rule is published based on system constraints in the IRS’s Electronic Federal Tax Payment System.
For estimated taxes (Form 1040-ES), the system restricts to two payments per quarter if you’re using the same payment method and tax period. This limit is part of the EFTPS’s operational constraints to prevent duplicate payments and ‘system abuse,’ rather than a reflection of tax law regarding the frequency of estimated tax payments themselves.
If you make more than the allowed number of payments per quarter through EFTPS and exceed this operational limit, the additional payments might be rejected or require manual processing.
I haven’t heard of anyone getting their payments rejected, but it’s something to watch out for.