Earn miles & points by paying taxes

March 11, 2023March 17, 2023 Jason

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Do you have property taxes due? Or perhaps, income taxes due? If you owe money to Uncle Sam or to your local government, your typical payment options are:

send in a check; or
set up some kind of payment plan in case you can’t pay in full; or
pay your taxes via credit card or debit card;
or via Paypal (wherever available)

I surveyed members of my Daddy Travels Miles & Points Facebook Group Page, I asked them how they intend to pay their taxes. This was how they responded.

Results of the poll regarding ways you intend to pay your property taxes.

56.8% – have an impound account, therefore the taxes are part of your monthly mortgage payment, and your mortgage company sends a payment on your behalf
13.5% – will be paying their property taxes directly by sending a check or via debit card
29.7% – will be using existing credit card or signing up for a credit card to earn points or cash back along the way

Is there really a wrong or right way of doing this?

I think we can all agree, no matter the form of payment, the bottomline, the property tax or your income tax need to be paid. Those who have an impound account probably fall in one of these buckets:

No choice when mortgage was set-up other than having an impound account
Didn’t realize they could request to pay for their property tax separately
For peace of mind, would rather not deal with a big property tax payment

These are all very valid reasons. In fact, for the longest time, I, too, had an impound account. I didn’t want to have to worry about setting aside a big chunk of money come tax season.

What? You could pay property taxes separately?

Depending on how your mortgage was set up, you may have the option to request to pay your property taxes separately. You’d need to call your mortgage company directly to request this. Some banks might have specific requirements to qualify for this such as amount owed vs the value of the home. That should be your first step, call and ask your bank.

If you have an impound or mortgage escrow account

This is for all of you with a mortgage payment. You might have an impound or escrow account – this means that your property taxes will be paid for you through this escrow account. Or, if you’re in the process of buying a house, your loan officer might give you an option to set up an impound account or escrow account. If given the option, you have the choice to opt in or opt out.

The good news with impound account

You don’t have to worry about making a separate property tax payment, it’s all included with your monthly mortgage payment.

Why we do NOT have an impound/escrow account

However, you could also be missing out on a couple of opportunities during the year. Property taxes are typically due in the spring or fall (in our case, April and December). Your mortgage monthly payment will also be reduced since your taxes are being paid at a later time by you.

To cancel your impound account

You will have to call your lender, your mortgage company to get this done. Depending on your loan situation, some lenders require to have an impound account, others don’t. Some lenders might need you to simply call to request, some might require you to request this in writing. I, personally, suggest requesting this way in advance. This process takes time. I suggest keeping the impound account until the lender advises you that you no longer have an escrow account.

Sample $4,000 taxes due

Over on my Instagram account, I was asked-about and paying property taxes and income taxes with credit cards. “There are fees to pay with a credit card (usually around 2%).” Her property taxes were $4,000. Should she pay taxes with fees using a credit card?

Let’s do the math

$4,000 x 2% = $80 in fees

Sounds steep? I mean, $80? That’s probably a couple of full tanks of gas, right? I’m sure there are hundreds of ways you could use a eighty bucks..

When it makes sense to pay with a credit card

For me, every time I have a huge expense (such as property taxes, or renovation, tuition dues, or dormitory dues) – those are huge red flags for me….”JASON, FIND YOURSELF A NEW CREDIT CARD AND APPLY!”

Using the above example, the person who inquired recently signed up for a new credit card, and is working on the $4,000 min spend.

By using the new card to pay for the property taxes of $4,000….boom…minimum spend is then easily met…EASY. But, but $80 in credit card fees? Why use a new credit card when paying property taxes You have to look at the return on your $80 investment.

Let’s say you apply for a Chase Sapphire Preferred. You have to look at what this card requires you to do to get the bonus.

Spend $4,000 in purchases with 3 months of opening the card
$95 annual fee
Earn 60,000 bonus (this bonus may vary depending on the current offer
$50 statement credit when you book a hotel using Chase Travel Portal

The 60,000 bonus points alone are worth $750 when you book with Chase. So right there, your $80 investment gives you an easy return of $750. Wait, what about the $95 annual fee? That’s easily offset by the $750 and the $50 statement credit when you book a hotel with Chase.

What if you DO NOT pay with a credit card?

What do you get? No rewards, no cash back….none when you pay in cash, check, or debit….none when you have your taxes paid via impound.

What about using my existing credit card?

This could still work if you have an existing credit card that will reward you at least 1 point per dollar when you pay your taxes with a credit card. Let’s say you have an existing credit cards that earns 1x per dollar. Here’s a side by side comparison. For this sample, and just to keep it simple:

New credit card = Chase Sapphire Preferred with a 60,000 sign up bonus, $4,000 minimum spend, earns 1x per dollar on all other purchases
Existing credit card = no sign up bonus, no required minimum spend, earns 1x per dollar on all other purchases

Paying taxes with a new credit card vs existing credit card

Clearly, you earn more points when you use a new credit card, pay for your taxes, and earn a huge sign up bonus. So if I use a new credit card to pay for my $4,000 tax bill, with the fees, it would cost me an additional $80. What does the $80 get me? Those 60,000 bonus points could easily be used towards travel rewards valued at $750. Or, in my personal experience, 60,000 points was good enough to get 4 roundtrip tickets to Hawaii, enough for 1 roundtrip ticket to Asia, enough for a couple of round trip tickets to Europe, enough for 2 nights for 2 adults at swanky Hyatt Ziva Cancun…and so on. So I think of these points as a ticket to different travel rewards possibility.

If you are disciplined enough to set money aside for taxes

If you were planning to pay for your taxes directly out of your checking account, then you are halfway there. You could plan on using a credit card to pay your tax bill, pay your credit card bill using the money you had set aside, and then reap the rewards from the miles or points or cash back opportunities from the credit card. You just need to make sure to stick with your plan and pay your credit card bill in full and on time.

Just remember

If you were planning to pay for your taxes directly out of your checking account, and decide to pay with a credit card, just make sure to stick with your plan and pay your credit card bill in full and on time.

Plan early

If this is a strategy that you want to choose moving forward, you might want to plan and consider applying for new credit cards BEFORE your taxes are due. So I would consider applying for cards in Feb/March in preparation for paying your taxes due the following month. You could pace yourself, get a new card with lucrative sign-up bonus and easily meet the spend when paying with credit card.

At the end of the day, you have to make a choice. Do you want the easy way out (nothing wrong with it), or do you want the route that gives you rewards?

For a list of over 60 credit cards, click here.