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Mastering Tax Payments with Gift Cards: A 2024 Guide

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An efficient way to gather travel miles and points swiftly is to buy gift cards (Visa Gift Cards or Mastercard Gift Cards) during sales at office supply stores or grocery stores.

Whenever these deals happen, you can amass thousands of travel points, based on the number of cards you buy and how frequently you visit these sellers.

This point-reaching method involves using credit cards that offer spending incentives at these retailers when purchasing reduced-price gift cards.

These discounted gift cards can subsequently be used to settle various tax obligations.

Whether you owe taxes to the IRS in April or prefer to remit estimated taxes quarterly, anyone can use gift cards to fulfill their tax duties.

This blog post will guide you through the process of using gift cards to make tax payments yourself.

Disclaimer: This article is not tax advice. Please seek advice from a tax professional to determine if the strategy detailed below is appropriate for you.

Blog Updates


Dates Updates
Important Avoid using a new American Express Credit Card for purchasing gift cards.
April
2024
PayUSAtax is now the most affordable choice for debit & gift cards and credit cards.
March 2024 ACI/Official Payments and Pay1040 have resumed accepting Mastercard Gift Cards. All three IRS payment processors now accept Visa and Mastercard Gift Cards.
Jan 2024 PayUSAtax has lowered their debit card fees from $2.20 to $2.14.
Nov 2023 ACI & Pay1040 no longer accept Mastercard Gift Cards.
Oct 2023 The IRS announced an increase in interest rates for the calendar quarter starting Oct. 1, 2023.

Why Pay Estimated Taxes?


According to the IRS:

The Internal Revenue Service announced that interest rates will increase for the calendar quarter commencing Oct. 1, 2023.

For individuals, the rate for overpayments and underpayments will be 8% annually, compounded daily. Here is a complete breakdown of the new rates:

  • 8% for overpayments (payments exceeding the owed amount), 7% for corporations.
  • 5.5% for the portion of a corporate overpayment over $10,000.
  • 8% for underpayments (taxes owed but not fully paid).
  • 10% for substantial corporate underpayments. 

Internal Revenue Service


Three IRS Payment Processors


The Internal Revenue Service (IRS) has approved three payment processors to accept and handle online tax payments.

Each payment processor allows a maximum of two payments per quarter, allowing us to make six tax payments using gift cards each quarter (three IRS payment processors X two payments per quarter = six payments using gift cards).


Three IRS Payment Processors
ACI Payments/Official Payments
Pay1040
PayUSATax

By doing this yearly, it is conceivable to send up to 24 gift card payments to the IRS (6 gift cards each quarter X 4 quarters = 24 gift card transactions).

This is an excellent method to convert those gift cards to cash.


IRS Payment Processor Number of Payments Accepted
ACI Payments/Official Payments 2 per Quarter
Pay1040 2 per Quarter
PayUSATax (Most Affordable Option) 2 per Quarter

Approach: Utilize Gift Cards To Pay Taxes


Regardless of whether you are a beginner or an experienced points hobbyist, the continuous challenge is identifying effective methods to convert these gift cards into cash.

This blog post will outline the steps for using these gift cards to fulfill tax obligations, encompassing income taxes and estimated taxes.


Reason to Send Estimated Taxes


The IRS advises taxpayers to make quarterly payments to avoid penalties for “underpaying” their taxes. These are referred to as “Estimated Taxes”.

If you traditionally settle your tax bills on April 15th, the strategy covered in this post might be a feasible alternative to substantially reduce or even eliminate your tax dues when filing season arrives.

In this method, you will employ Visa Gift Cards (VGCs) or Mastercard Gift Cards (MCs) to settle your estimated taxes 4X/year, helping decrease your tax obligations when taxes become due.

Because these gift cards were purchased using credit cards that accrue travel points and miles, the rewards from these transactions can eventually be redeemed for free or reduced travel in the future.

If you still have a balance with the IRS on April 15th despite making estimated payments, consider using your remaining gift cards to cover the owed amount. Frankly, I am unsure how long the IRS will accept gift cards, so I attempt to maximize this option as much as feasible.


Steps Overview


STEP 1 SUMMARY:

Acquire discounted gift cards from office supply stores and supermarkets using credit cards that provide category bonuses.

Occasionally, online gift card vendors like giftcards.com also offer discounted cards, so ensure to leverage such offers.

I share these deals as I discover them in our Travel Miles & Points Facebook Group. Membership is free.

TRAVEL-MILES-AND-POINTS
Join Our Free Travel Miles & Points Facebook Group

STEP 2 SUMMARY:

Employ these gift cards (Visa Gift Cards or Mastercard Gift Cards) to settle your estimated taxes.

Because you’ve already earned travel points when purchasing these gift cards, you are indirectly accruing miles and points from fulfilling your tax payments.

Note:Besides Estimated Taxes, I’ve also paid my federal taxes, state, payroll, and LLC taxes using gift cards.


Taxes ACI Pay1040 PayUSA
Estimated Taxes 2 every quarter 2 every quarter 2 every quarter
Federal Taxes 2 annually 2 annually 2 annually
Number of Payments Accepted via Payment Processor

SUMMARY STEP 3:

Since these gift cards are classified as “debit cards,” the fees you face are relatively smaller than using a credit card, ultimately saving some money.

Heads up: While the fees are not more than a few bucks, this payment option may not suit those who dislike paying additional charges, no matter the amount.


This Strategy May Work If You….


  1. You currently have a stash of Visa Gift Cards (VGCs) and Mastercard Gift Cards (MCGCs) at home, and you are struggling to find sensible ways to spend them.
  2. Able to settle your credit card bills entirely by the due date to gather these gift cards without paying substantial credit card fees.
  3. Owe the IRS consistently at tax time and are open to spreading your payments by sending estimated taxes quarterly.
  4. Don’t mind paying the nominal fee for using debit cards for estimated tax payments.

This Strategy May Not Work For You If….


  1. The IRS typically owes you a refund during tax season.
  2. You’re at risk of missing your credit card bill payments, complicating bulk purchases of these gift cards.
  3. Dislike the prospect of overpaying the IRS, even if the IRS refunds any overpayments.

Step-by-Step Guide on Using Gift Cards to Pay Estimated Taxes



IRS Guidelines (IRS.GOV)


  • You can pay online or via phone (refer to Payment Processor Contact Information below for phone payments)
  • You can pay using digital wallets like PayPal and Click to Pay
  • The number of card payments allowed is based on your tax and payment types.
  • Federal tax deposits by employers can’t be paid using a card; check how to pay employment taxes.
  • For card payments of $100,000 or more, special conditions may apply.
  • No portion of the card service fee goes to the IRS.
  • You don’t need to send a voucher when paying by card.
  • Card processing fees are tax-deductible for business taxes.
  • Contact the card processor to revoke a card payment.
  • The IRS will reimburse any overpayment unless you owe a debt on your account.
  • Your card statement will list your payment as “United States Treasury Tax Payment” and your fee as “Tax Payment Convenience Fee” or a similar description.
  • Federal tax lien releases might take up to 30 days after full payment; liens might remain for others who haven’t fully paid their share.
  • Different card fees apply when paying while e-filing your taxes.

Fees Per IRS-Approved Payment Processor


As stated previously, the IRS has sanctioned three online payment processors enabling taxpayers to make tax payments online through a debit or credit card.

Current fees for each processor are available on the IRS website.

Nevertheless, fees are subject to change periodically,so press the button below to get the latest update on the fee schedule.

Image: IRS.com

Further details about commonly asked questions are also available on the IRS website:

  • The card service charge does not go to the IRS.
  • No need to mail a payment voucher if using debit or credit cards.
  • Card processing fees are only tax-deductible if they relate to business taxes.
  • Contact the processor, not the IRS, to cancel a card payment.
  • If there is an overpayment, the IRS will refund it unless money is owed.

Gift Cards Count as Debit Cards


The following image demonstrates the cost savings of using gift cards (debit cards) over credit cards for paying taxes.

Image: IRS.com

For instance, using a debit card to pay $10,000 in taxes on ACI Payments, incurs only a $2.20 per gift card fee.

On the other hand, the same amount paid via credit card on ACI would result in a significant charge of $198.00.


Tips Details
1 Use credit cards with bonus rewards to purchase gift cards, then use those for tax payments to avoid substantial credit card fees with IRS-approved payment processors.
2 Avoid purchasing gift cards with an American Express Credit Card, particularly when aiming to meet a new card’s minimum spending requirement, as this breaches the card’s terms and conditions.

Estimated Taxes Payment Deadlines


Set reminders for the quarterly deadlines of future estimated tax payments.

Payment Period Due Date
1st Quarter: January 1 – March 31 April 15th
2nd Quarter: April 1 – June 30 June 15th
3rd Quarter: July 1 – September 30 September 15th
4th Quarter: October 1 – December 31 January 15th
According to IRS: If an estimated tax payment due date lands on a Saturday, Sunday, or legal holiday, you can make the payment the next day that isn’t a Saturday, Sunday, or legal holiday to be on time.

Processor #1: ACI Payments/Official Payments




Dates ACI/Official Payments Updates
Charges Debit Card/Gift Card Cost: $2.20

Credit Card Charge: 1.98% (minimum: $2.50)

March 2024 ACI/Official Payments have resumed accepting Mastercard Gift Cards.
Both Visa and Mastercard Gift Cards function on ACI.
March 2024 Estimated Taxes for Q1 2024 are now accepted starting March 1st.
Nov 2023 ACI/Official Payments temporarily halted the acceptance of Mastercard Gift Cards.

STEP 1:

Official Payments/ACI Payments stands out as the most favored among the three processors.

ACI/Official Payments imposes a $2.20 fee for tax payments up to $10,000 (as of January 2024) when utilizing a debit or gift card.

Possess a $1000 gift card? Submit it to the IRS and incur only the flat fee of $2.20 when paying via Official Payments/ACI Payments.

The following table demonstrates the taxes due minus the fee when making use of Official Payments/ACI Payments.

Gift Card Tax Fee
$100 $97.8 $2.2
$200 $197.8 $2.2
$500 $497.8 $2.2
$1000 $997.8 $2.2
ACI/Official Payments


STEP 2:

Create a profile with ACI Payments / Official Payments to store your data.

This speeds up the process for future transactions. They also maintain receipts of all your past payments.

Subsequently, choose the category of bill you desire to pay – federal, state, or local.

I noted that it is also feasible to cover education-related expenses, although not all institutions are listed.

Nonetheless, the list is extensive, so be sure to verify you are paying the correct “tax” category.


STEP 3:

Navigate the site until you need to specify the exact type of tax bill you wish to pay.

If handling Federal Estimated Taxes, proceed by selecting Federal IRS Payments.

This will redirect you to ACI Payment’s Federal Payment Site.

Then choose “Personal Tax Payments” and “Form 1040 Series.”

Pick the type of tax you wish to remit.

When forwarding Estimated Taxes, opt for “Estimated Tax- (tax year)” to remit advance payments to the IRS each quarter.

Ensure to explore other possible tax dues you can settle with gift cards, as various options exist.


STEP 4:

Enter the required details, including Payment Amount and Payment Option.

Ensure to manually subtract the debit card fee.

Pay careful attention to the amount you’re subtracting, as the debit card fee differs among payment processors.

In the scenario below, I had to subtract the $2.20 debit card flat fee from the total value of my $200 gift card because I was using ACI Payments.

Thus, I entered $197.80 to exhaust my gift card completely.

This crucial step must be performed correctly; otherwise, your payment will either not be processed since the payment amount exceeds the total value of your gift card, or you will have a leftover balance on your cards.

The goal is to exhaust the value of your gift cards entirely. Every cent counts.

The table below summarizes the taxes (minus the fees) you can pay with various gift card denominations for each processor.


Gift Card ACI Payments
($2.20 fee)
PayUSAtax
($2.14 fee)
Pay1040.com
($2.50 fee)
$100 $97.8 $97.86 $97.5
$200 $197.8 $197.86 $197.5
$500 $497.8 $497.86 $497.5
$1000 $997.8 $997.86 $997.5


STEP 5:

Continue to the subsequent payment steps.

In the illustration below, note that Official Payment/ACI only billed me $2.20 as it automatically recognized that I was using a debit card to pay.

Once again, gift cards are treated like debit cards; consequently, the service fees are significantly lower.


STEP 6:

Subsequently, you will be prompted to review the details prior to submission.

After confirming that all details are accurate, press pay.

If you are duplicating an identical amount, ACI Payments will check if you genuinely wish to remit two identical payments (see image).

Click on “Continue” to proceed.

You will then receive confirmation that your payment was processed successfully.

Note: These gift cards are usable even if they haven’t been registered online. After paying, I retain all my tax receipts and save them to Google Drive. Alternatively, you could print the receipts and attach the gift cards for documentation purposes. Lastly, I record all of my payments in a spreadsheet to monitor the estimated taxes I have sent to the IRS for the year.


STEP 7:

OfficialPayments.com (ACI Payments) limits users to 2 payments per quarter.

If you need to liquidate over two gift cards, you can use PayUSAtax.com ($2.14 fee) or pay1040.com ($2.50 fee).

The next sections will guide you on how to pay taxes using these payment processors.

As previously mentioned, both processors allow a maximum of 2 payments per quarter, similar to ACI Payments.

In summary, anyone can remit six discrete gift card payments to the IRS every quarter!

Pro-Tip: Don’t fret about overpaying. The IRS will send a refund if you do.


Processor #2: Pay1040.com




Dates Pay1040 Updates
Fees Debit Card/Gift Card Fee: $2.50

Credit Card Fee: 1.87% (minimum: $2.50)

March 2024 Pay1040 has resumed accepting Mastercard Gift Cards.
Both Visa and Mastercard Gift Cards now work on Pay1040.com.
Nov 2023 Pay1040 has temporarily suspended accepting Mastercard Gift Cards.


Step 1: Navigate to Pay1040.com and Click Make a Payment


Step 2: Pick the appropriate form and input the exact amount

  • Tax Category
  • Tax Form: Selected Form 1040-ES for Estimated Taxes
  • Tax Form Option: Chose Estimated Tax-2024
  • Tax Year: 2024
  • Payment Amount: Subtract the $2.50 debit card fee from the gift card’s value. For instance, I converted a $200 gift card, so I entered $197.50 as the payment amount.
  • Filing Location: Within the United States

Step 3: Verify that all amounts are accurate

Given that my gift card has a total value of $200, I deducted the Pay1040 debit card fee amounting to $2.50.

This ensures that no balance remains on the gift card as I intend to exhaust it completely in a single transaction.


Step 4: Print or save a PDF in Google Drive for record-keeping

To keep receipts organized, I upload them to Google Drive under the label “2024 Fed Estimated Taxes” for easier access during tax season.

Heads Up: Similar to ACI Payments, Pay1040.com allows taxpayers to submit two identical payments. You will be prompted to verify and confirm the amounts you are sending and follow the steps to “Process Payment“.


Processor #3: PayUSAtax.com (Cheapest Option in 2024)




Dates PayUSA Updates
Fees Debit Card/Gift Card Fee: $2.14

Credit Card Fee: 1.82% (minimum: $2.69)

March 2024 Visa and Mastercard Gift Cards are currently accepted.
Jan 2024 PayUSAtax has lowered their debit card fees from $2.20 to $2.14.
June 2023 When submitting two payments, ensure the second payment differs in amount as this processor doesn’t accept duplicate payments. Adjust the amount by 1 cent (e.g., $197.86 & $197.85).

Before Using PayUSATax: Register Your Cards


As an additional verification and security measure, PayUSATax requires the zip code on the gift cards to match the payer’s address.

Thus, you must register your gift cards before utilizing them on PayUSATax; otherwise, you will encounter an error as shown in the image below.

In order to register your gift cards, go to the web address on the backside of your gift cards.


Phase 1: Choose the kind of payment you intend to send to the IRS

The screenshot beneath illustrates that I opted to pay my Individual Federal Estimated Taxes for the year (Form 1040-ES).

This service can also be used to settle my present tax returns and previous ones.


Step 2: Fill in Payment Information

Given that PayUSATax.com has a flat fee of $2.14 for debit card transactions, I subtracted that fee from the entire balance of the gift card I was utilizing.

Possessing a $200 gift card, I entered $197.86 as my payment sum.

This guarantees that I redeem the full balance on my gift card.


Step 3: Verify the Information and Continue with the Payment

I store the receipt on my Google Drive for effortless access during tax season.

I too logged the amount on a spreadsheet to monitor the cumulative estimated taxes I had remitted to the IRS for the year.

Potential Problem on PayUSAtax.com: PayUSAtax.com only enables one payment of the same amount. An approach to overcome this obstacle is to adjust the amount of the second gift card by one cent. For instance, I successfully used two $200 gift cards by submitting payments of $197.85 and $197.86, respectively. Observe the screenshot beneath.


Frequently Asked Questions and Examples


1. Taxes Due: $410


I owe $410 in income taxes, and I only possess two gift cards, each valued at $200. What do you suggest?
a. Utilize ACI Payments to send $197.80
b. Make another $197.80 payment via ACI Payments
c. Use a credit card to cover the remaining $4.40.

We owe $9000 in taxes. Do you have any advice?
Credit Card Approach: ”Apply for 2-3 new credit cards and leverage them to earn attractive welcome bonuses”

Gift Card Approach:Send 5 gift card payments to the IRS, and the 6th payment can be with a new credit card that offers an attractive welcome bonus”.

3. Can I use virtual cards purchased at Giftcards.com?

Yes, as of May 2024, both virtual and physical cards appear to be functional with all IRS payment processors.


Bookkeeping Strategy: Save in Google Drive


I upload my estimated tax receipts to Google Drive for easy access during tax season.

I inform my CPA of the total estimated taxes paid to the IRS and my state, so they can precisely deduct the amount from my overall tax liability.

Q1 2024: I converted my $200 gift cards purchased from Staples and Office Depot.

Q2 2024: I converted my $250 gift cards bought from GiftCards.com during an American Airlines shopping portal promotion (earn 3 American Airlines miles per dollar).

Q3 2024: I converted my $200 gift cards purchased from Staples and Office Depot.


Final Thoughts


I am a great admirer of gift card promotions, and I seize every chance to utilize them.

However, here’s a gentle reminder to purchase only the number of gift cards you can comfortably afford to pay off when your credit card bill arrives.

A common challenge that points enthusiasts encounter is discovering sensible ways to utilize these gift cards, as options have decreased significantly over recent years.

I hope the method I outlined in this blog post introduces another way for you to convert these gift cards into money.

More importantly, I appreciate the idea that I can get a free flight or hotel stay from paying taxes, as it alleviates this financial burden somewhat.

Please share in the comments section if you successfully executed this method.

Editorial Disclosure: Opinions stated here are solely those of the author, not of any bank, credit card issuer, hotel, airline, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities featured within the post.

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