Welcome Million Mile Secrets readers and thanks so much to Daraius for asking me to participate in his Friday travel series today. Head over and check out the interview.
For the past couple of years, taxes have been our biggest annual expense, more than what we pay for our mortgage, utilities, and groceries combined. We have our own personal income tax, which includes self employment income, plus three separate property tax bills.
Since paying off all consumer debt in 2012, we try to use our reward credit cards for every expense to earn points and miles. Since we pay off the balances each month, it’s an amazing way to travel for free or almost free. We have a big trip in the works for next year. It will be our first family trip to Europe, and I decided there must be a way to take advantage of these awful taxes to earn some major rewards. This is my experience, good and bad, of paying high taxes with a credit card.
Are Fees Worth the Cost of Paying Taxes With Credit Cards?
I have know for years that you could pay taxes with a credit card. When we were drowning in debt, that would have been an awful idea, but now, maybe it’s not such a bad plan. The government does not accept plastic, but they use companies that will process your tax payment for a fee, the cheapest being 1.87% of the amount.
Last year, we received a targeted offer of 100,000 Membership Rewards points with a new American Express card if we spent $10,000 in 3 months. At first, I disregarded it, as I knew that was more than our monthly spending. Then I remembered that we had a $10,000 tax payment coming up and decided that maybe $187 in fees was a fantastic deal for 100,000 points that can transfer to several airlines or hotels. That many points get us pretty far toward our travel goals next year.
Moving Up to Bluebird
This year we have moved up the food chain in travel hacking so to speak. When I first heard of American Express Bluebird, I thought it was insane. It seemed like so much work, especially since we didn’t have any stores that sold Vanilla Reloads in our area. Now that those don’t work, everyone is in my same boat.
If you aren’t in the know, you can open a Bluebird account, which is a free checking/debit alternative, then use pre-paid debit cards with a PIN number to load the account. You buy the debit cards at drug stors or grocery stores with a credit card to get points. You can use Bluebird’s bill pay or checks to pay bills that don’t take credit cards. Seems like something someone with a job and/ or family responsibilities or just plain common sense would avoid, right?
Well, not so fast. Even though it is lots of work, I decided to try it out. We had a $2500 property tax payment in February and our county does not take credit cards. I decided to give Bluebird a try, so I signed up and started looking for the correct pre-paid debits that would work to fund the account. After some trial and error, the Vanilla Visa Debit cards at Walgreen’s were the easiest to use. They have a $4.95 fee for each card, regardless of whether you put $25 or $500 on the card. I would recommend using the full $500 per card to minimize fees. When you use the Vanilla debit card, the PIN number is whatever numbers you choose, so you can punch in any 4 digits when the card is swiped. I can buy $1000 worth of debit cards at a time, then go right to Wal Mart and load them. Bluebird only lets you load $1000 per day up to a max of $5000 per month.
The Visa debit cards I’ve tried from Kroger work fine too, but their fee is $1 more per card. They also come with a little paper inside the gift card pack with a printed PIN number. The Mastercards DO NOT WORK AT All, even though you can call and set up a PIN number over the phone. While the fee per card seems higher at grocery stores, if you have a card that gives double or triple points for grocery purchases, it might make more sense to use these.
Paying Property Tax With Bluebird
It took a few trips to Walgreen’s/Wal Mart, but it was no problem paying our property tax bill with Bluebird bill pay. You can also order checks from Bluebird to pay the IRS or state taxes. Bluebird can save money on fees for sure. For example, my $10,000 tax payment would have only cost $99 using Bluebird and pre-paid debits, but it would have taken ten trips to get the account loaded. If you have the time, it’s worth it, but it does get tedious.
Will I Always Pay Taxes With Bluebird or a Credit Card?
Not necessarily. With two days left to go until April 15th, I still needed to get $3000 into Bluebird to be able to pay our 2014 estimates for this quarter. I’d run out of time. I considered just using a credit card to pay the taxes online. I could have used the Barclay Arrival card that gives double points on every purchase, which would have been more than the 1.87 percent fee. When I did the math, it only saved a few dollars, so I had suck it up and write a normal check. I don’t have a card right now that requires a big spend to hit a bonus, so it’s not worthwhile to incur the fees by paying online. However, if there is am amazing offer we need to take advantage of down the road, you can bet I’ll be hitting the Walgreen’s/Wal Mart circuit or just paying taxes with a credit card if if saves hundreds or thousands of dollars on travel.
As a disclaimer, please, please, please do not use a credit card to pay for anything if you carry balances. Use the promise of future travel rewards to motivate you to pay off debts and become financially responsible!
To celebrate taxes being over for 2013 and to reward you for reading that long post, we are giving away two prizes. First prize is a $25 Southwest Airlines gift card and second prize is 4 free drink coupons good for any beverage on your next Southwest flight.
I will email the gift card number and pin to the winner and will send drink coupons by USPS. Drink coupons expire on December 31, 2014. Giveaway ends on 4/26/14 at midnight.