Guest Post: The Ultimate Credit Card Rewards Hack

Noah Churning, The Metagame, Travel Hacking

Today, I wanted to share some great content from my favorite blog written by an accountant: The Wealthy Accountant!  It’s not a traditional guest post in that Keith wrote it specifically for this website, but rather he gave me permission to share his writing here on my own blog.

This post covers an amazing credit card hack that works for anyone who pays taxes (and that’s probably just about anyone).  If you normally don’t have very high monthly spending or struggle to meet as many minimum spend requirements on credit cards as you would like, this post is for you.  And it doesn’t just apply to those that are self-employed, it can work for regular W-2 employees as well!

Not to mention the big kicker at the end that could allow a very large amount of spend that you shouldn’t even have to float.

Hopefully I grabbed your interest and I’ll let Keith take it away from here, he is the expert accountant after all!

The Ultimate Credit Card Rewards Hack

Living your dream vacation is easier than ever with credit card rewards. A litany of cards offer massive miles, hotel rooms or cash for spending a certain amount within a short period of time. And there’s the rub. How can the average person spend $3,000 and more to get bonuses of 50,000 points and up within a few months?

Enter manufactured spending. Reaching a level of required spending either requires owning a business with significant purchases, over spending your budget to get the rewards (why bother, it’s cheaper to buy the darn airline tickets) or manufactured spending. Manufactured spending takes time and requires jumping through hoops. There are also additional fees using many manufactured spending methods. And the time! Oh my god, the time to get it done. There has to be a better way.

Meeting spending requirements always required some fancy footwork. But for you, my friend, those days are over. Today I will show you how to reach nearly any spending goal you need for the vacation of your dreams at virtually no cost to you. In fact, you will probably get paid to engage my way of manufacture spending. The time requirements are nil and the whole process is easily handled from the easy chair in your living room.

If you want free vacations from now on, keep reading. The travel hack/credit card hack I am about to reveal is something I have not seen anywhere else. Even if you don’t care to travel, this strategy can drop $10,000 or more a year in your lap tax free.

Meet My Favorite Uncle, Sam

I know y’all come here expecting to read about taxes and stuff. Instead you find articles on early retirement, financial independence, tips on living the good life, and every so often a tax or investment tip. What’s up with that? Well, no more. Today we are going to talk about taxes (only a little bit) because the IRS wants to give lots of free money and vacations, all for the asking.

I will save the links until the end of this post so we can focus on the process.

It works like this: You can pay your taxes with a credit card on a few sites for a fee of 1.87% to 1.98% Since many credit cards have rewards worth around 1.5% to 2% the fee paid is negligible and even slightly profitable in some instances. The value of the points used for travel can make the transaction very profitable.

Bonus rewards of 50,000 or more points for spending a certain amount within a certain time—say $3,000 in 90 days—is no longer an issue. The IRS will help you accumulate nearly any amount of points needed to travel first class anywhere in world.

You and your significant other can apply for a few new cards a few times a year to supercharge your points portfolio of hotel rooms, airline rewards points, cash and other rewards.

Yes, I hear your groans. You don’t owe the IRS or you already filed your taxes. Never worry. This friendly accountant will now show you how a few tax hacks that will turn virtually any tax situation into a cash cow.

Pump Up the Volume

Owing money when you file your tax return limits the opportunities to capitalize on credit card rewards. You can only pay what you owe. Paying the IRS can take many forms, however. Estimated taxes are also payable via credit card. So are payroll taxes for small business owners.

Small business owners can pay their 940 and 941 deposits via credit card on the sites listed at the end of this post. Business owners with employees now have a reason to rejoice every payday.

For non-business owners there are plenty of additional opportunities. There is no rule requiring you to withhold your taxes from your paycheck. You are more than welcome to pay your federal withholding via an estimated tax payment. By changing your W-4 at work increasing your exemptions—thereby lowering your withholding—you will need to make an estimated tax payment to avoid a large year-end balance due. This will provide plenty of spend to meet the credit card bonus requirements.

The IRS says you can claim exempt on your federal withholding if you expect to owe no taxes on your next return. Well, you’re not going to have a balance due! Every month you will make your estimated payment online to keep the IRS happy and satisfy the spending requirements of your new credit card.

You can pay your state taxes the same way, but paying online by credit card is limited to a few states or the fees are higher. You can check the links at the end of this post to review if your state taxes can also be paid by credit card.

The Ultimate Hack

What I outlined above still limits your spending to your actual tax. If you have a low tax the above strategy still doesn’t solve the problem. No worries.

From now on I want you to file your taxes late. It’s okay. This is all legal.

I want you to give your tax professional all your tax documents like you normally do. When she finishes your return tell her to file an extension instead. Anytime during the year you need a massive amount of extra spend to satisfy multiple new credit card bonus requirements you simply pay the IRS an estimated payment for the 4th quarter of the previous year. Call your accountant and inform them of the additional estimated tax paid. File the return ASAP and have your refund direct deposited. You should have your refund in a week or two, well before the credit card payments are due. There is no limit to the size of this type of manufactured spending. Bit it is limited to once a year. Who ever thought you would be so excited looking forward to preparing your taxes?

Bringing it Together

This is a simple hack merging credit cards and taxes. Let’s bring it together so you can get started.

You can pay virtually any federal tax by credit card. Business owners can turn payroll tax payments into cash or vacations

Anyone can reduce their federal withholding at work and make estimated payments instead via credit card.

Finally, you get a once a year opportunity to gather massive rewards points by making a massive estimated tax payment and then filing your tax return so you have your refund before the credit card payment is due. If you use this strategy, know that if you do this after June 1st of the year the return is due the IRS will pay you interest from June 1st to the day the cut the check or direct deposit the funds.

Here are the three sites where you can pay your taxes via credit card online or by phone:

Pay1040: The fee is 1.87%. It is the lowest I could find and is less than some credit cards pay in cash back.

PayUSATax: This payment method is used by my tax software. The fee is 1.98% as of this writing.

Official Payments: Official Payments allows you to pay a lot of other taxes, tuition, fines, utility bills and more. The fee is higher, too. I only recommend this site for payments that can’t be made on Pay1040.

The above are not affiliate links, therefore I receive no compensation if you use their services.

Your friendly accountant does get hungry now and again so I humbly submit the credit card research link below. If you use the following link and apply for and are approved for a credit card at that time I will receive compensation. My hope is you will take pity on a wayward accountant and grant him the love of a commission check by getting all your credit cards using the link below from now on. Be sure to bookmark this page for later reference.

You can start your credit card research here or here (I like the second link as a starting point personally). [Ed. NOTE: These are Keith’s affiliate links, if you want to support Money Metagame instead, see here]. The link takes you to a page with a few recommended rewards cards. There is also a tool for you to research the perfect credit card for your needs. You can pick up a card or two for yourself and your significant other can do the same. In no time at all you will be traveling the world tax-free, all thanks to the IRS.

Is Uncle Sam is starting to give you the warm and fuzzy? Me neither. I just can’t go that far with the love.

13 thoughts to “Guest Post: The Ultimate Credit Card Rewards Hack”

    1. I chose not to implement this strategy myself for a couple reasons, the primary one being that I’m not having any problem meeting the minimum spend on the credit cards we get. In theory, I could bump up the number of cards we sign up for, but we already earn more than we redeem and a card or so every month seems like a good pace we can maintain for a while.

      The other option is cash back, but even with my 2.5% back USAA card we would only make the spread between 2.5 and the 1.87 fee which didn’t seem to be enough profit to make it worth the hassle of making monthly tax payments manually.

      I may reassess in the future, but for now I’m sticking with regular paycheck withholding.

  3. Read this awhile back and was very intrigued. Noah, do you think you could add a “my verdict” or something at the end giving us a little more practical know-how on this? Especially since most of us do our own taxes so we need additional instructions, and I always appreciate the way you explain things.

    For instance, do you just put 99 exemptions on your W-4? can you really put any amount for the estimated payment? how do you make that type of payment yourself (can you do it with Turbotax? online with the IRS? can you split payments between credit cards)? If we can’t pay state taxes this way, do you file your state taxes on time and do an extension for federal?

    Thanks!

    1. Hey JCB,

      I chose not to add my own take at the end because I’m not an expert on the different rules and regulations of tax withholding. I’d rather use Keith’s expertise in the subject at face value. As I haven’t actually implemented this system myself, I also don’t have the first hand experience to share.

      Having said that, here’s my interpretation of the basic steps:
      1. Put 99 exemptions on your W-4 which is code for “I don’t need to withhold anything”
      2. Make monthly estimated tax payments using a credit card on the pay1040.com website. I believe they allow two federal payments per month, so you could split between 2 cards if desired.
      3. Keep good records of these tax payments, I assume they give you a “receipt” of some kind. Don’t lose it.
      4. When filing, in TurboTax or other tax software, there should be an option to say you made estimated tax payments for this tax year. You will input the dates and amounts of the tax payments made.
      5 (Bonus). Before filing your taxes for the previous year, make an additional estimated tax payment in any amount (it will all be refunded) for that previous year, so you could in theory max out 2 credit cards and the IRS will direct deposit the money into your bank soon after. I’d be careful with going too high because it is possible for the tax refund to be delayed.

      For #5, you don’t really have to file for an extension if you take care of the bonus payments before tax day. The extension is optional if you want more time for some reason (like to apply for new cards).

      For state taxes, I’m not sure on the specifics and it probably varies by state. If you’re no longer withholding those taxes from your paycheck, be sure to pay them on time and file in accordance with their rules. I can’t help beyond that.

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  5. Wow, what an irresponsible post – even if you didn’t write it. Most people will not be able to keep track of paying estimated taxes and probably will end up getting assessed fines, penalties for underpaying, being late, and flag you for the future.

    Consider putting some sort of warning “try at your own risk” notice because this will end badly for many people. This works for the Accountant because they are a pro and know how to make this work.

    Sure, a first class trip is nice but there are definitely better ways to pursue that than manipulating your taxes.

    1. Thanks for commenting Mark, this strategy definitely isn’t for anyone that isn’t organized. The same case could be made for even signing up for credit cards in the first place, there are plenty of pitfalls if you’re not on top of your financial situation.

      As with anything on the internet, you should do your own research before blindly following someone else’s idea, but I do think this strategy can be useful to a specific set of my readers that have very low regular monthly expenses, but are very organized.

      Thanks for the feedback.

  6. All this hassel by applying for a new credit card, reducing your credit score via inquiry and lowering the average age of your credit by adding a brand new credit account and paying additional $60 (2% transaction fee on $3000.00) to get a miserable $240 (300-60) ?!! I thought this website was for intellectuals!

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