If you own your own business, you probably already earn credit card rewards for the types of business expenses where credit cards are readily accepted: store purchases, travel, entertainment, employee gifts, etc. But, what about business expenses that can’t normally be paid by credit card? Plastiq is a service that lets you pay almost any bill via credit card (see: Complete guide to Plastiq credit card payments). They charge a 2.5% fee for this service and, in most cases, they send a check to your payee.
When you use Plastiq for business purchases, the 2.5% fee is a legitimate business expense. As a result, your business’ net cost, after taxes, will be lower. If we guess that your net fee drops by 30% due to tax savings, then the after tax cost to your business is only 1.75%. That’s not bad, especially since many cards offer 2% or better returns.
One-off Payments vs. Payroll
I’ve used Plastiq many times to pay my business expenses. While I’ve encountered a few hiccups, it has generally worked well. One thing I’ve avoided, though, is using Plastiq for repeated employee payments. I find their current options for scheduling repeated payments to be clunky and, worse, they offer poor reporting options. And, now that I have a full time employee, I’ve started using a payroll processor to take care of tax withholdings, reporting requirements, etc. I was sure that Plastiq was not going to help with any of that. Then I received an interesting email…
Plastiq sent me an email titled “Exclusive invitation to Payroll on Plastiq“. The gist of the email said:
Payroll on Plastiq is an invitation-only program that provides select Plastiq clients with the option of making payroll payments using their credit card. The best part about it is you don’t have to switch off your current payroll provider.
Now that was intriguing. If I could stick with my existing payroll provider and pay Nick via credit card, this might just be a nice little win.
How to get the invite
I’ve used Plastiq regularly for one-off business payments. My guess is that is why I was invited. I don’t know this for certain, but I’d bet that if you make a number of business payments and then contact Plastiq to ask about Payroll on Plastiq, you may get the invite too.
Which credit card?
Many credit cards offer 2% rewards, or better. See Best rewards for everyday spend for an up-to-date list of cards that offer 2% or better returns after including the card’s annual fee in those calculations. If you want to use a business card, though, at the time of this writing the list shows only one option: the new Blue Business Plus Credit Card. But, there is a reason that I probably won’t use that particular card for this purpose (more on that topic, below).
I don’t usually get too hung up on making sure to use business cards for business expenses, but if I were to go forward with this, payroll would be my biggest business expense by far (don’t worry Nick, you’re worth it) and I would feel better using an actual business card tied to my blog business. Also, while I usually recommend using Plastiq just to meet minimum spend requirements for new credit cards, in this case I want to use just one card across time in order to keep the accounting simple.
Here are the business cards I’m considering using for payroll:
Amex Blue Business Plus Credit Card
- Rewards: 2X Membership Rewards points, up to $50K spend per calendar year, then 1X
- No Annual Fee
I would love to get 2X Membership Rewards points for payroll. But, between payroll and other expected uses for this card, I would run through the $50K cap quickly. I’d prefer to use an uncapped rewards card for payroll and then use this card for contractor payments and other business expenses.
Some businesses may be especially attracted to this card’s 0% introductory APR since it essentially amounts to a 12 month interest free loan for your business. Keep in mind, though, that if you don’t pay it off in full within those 12 months, you’ll owe a huge amount of interest.
More details about the Blue Business Plus Credit Card can be found here.
Capital One® Spark® Cash for Business
- Rewards: 2% cash back for all spend.
- Annual Fee: $95
This is the only business cash back card that I know of that offers a high rate of return for all spend with no caps. Plus, it has a very nice welcome offer. See our best offers page for current offer information.
More details about the Spark Cash Card can be found here.
Capital One® Spark® Miles for Business
- Rewards: 2X Miles for all spend. Miles are worth 1 cent each.
- Annual Fee: $95
As far as I can tell, this card is identical to the Spark Cash card except that it earns 2 “Miles” per dollar instead of 2 cents per dollar. Since miles are worth 1 cent each, the rewards are basically the same. The main difference is that “Miles” can only be used for travel purchases whereas cash back can be used for anything (obviously). The one reason I can think of to get this card over the Spark Cash is if you want to revel in the joy of free. That is, spending “miles” may feel more like you’re getting travel for free than if you spend cash. See: Impossible point valuations and the joy of free.
Despite the joy of free thing, I would (and probably will) apply for the Spark Cash card rather than the Spark Miles card. Or, maybe I’ll apply up for one now and another later. We’ll see.
More details about the Spark Miles Card can be found here.
Business card spend for status or perks
A number of business cards offer status or perks for high spend. Here are some examples:
- Chase Southwest Airlines Rapid Rewards Premier Business Card: If you earn 110,000 Southwest points in one calendar year, you’ll get a companion pass good for the rest of that calendar year and all of the next year. Points earned from this credit card do qualify.
- CitiBusiness AAdvantage Platinum Select World Mastercard: Earn $99 plus taxes domestic companion certificate after $30K spend.
- AAdvantage Aviator Business Mastercard: Earn $99 plus taxes domestic companion certificate after $30K membership year spend. Earn $3,000 EQDs with $25K calendar year spend.
- Chase United MileagePlus Explorer Business: 10K bonus miles after $25K calendar year spend.
- Starwood Preferred Guest Business Credit Card from American Express: SPG Gold elite status with $30K annual spend.
- Chase Marriott Rewards Premier Business: Automatic Gold status with $50K spend per account year; plus 1 credit towards elite status for every $3,000 in purchases.
- JetBlue Business Card: Earn Mosaic elite status with $50,000 calendar year spend. Mosaic status good for rest of calendar year and all of next year.
My Choice
As I mentioned earlier in this post, for payroll purposes I would want a card that I can essentially “set and forget”. I need one that earns better than 1.75% in rewards for all spend, with no annual caps. The card that best meets that criteria is the Capital One Spark Cash for Business (2% cash back, unlimited).
I’m waiting for a decision on my Chase Ink Business Plus application, which I wrote about here (it has been a long time with that one because my first BRM left on emergency medical leave before submitting my application). Once I get a final decision on that card I expect to apply for both the Capital One card and the new Amex Blue Business Plus.
See Also
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Actually, I believe you are significantly undervaluing the Southwest card here. SW points are always worth about 1.6 cpp on wanna get away fares. If you have a companion, it’s double at 3.2 cop.
It all depends on your use and if you are a sole proprietor. If you are and the use is business, my tax attorney told me it was 100% deductible . I have paid for tax advise and we instructed as such.
No one has mentioned the risks from the credit card issuer. I can easily see the fraud or loss prevention folks holding things up. Requests for confirmation or fuzzy interpretations of the TOS come to mind.
Additionally, the tax adjustment is overly optimistic. The average effective marginal rate is much lower than 30% (sole prop or incorporated).
All the little details seem to make the juice not worth the squeezing!
[…] Paying business expenses with credit cards […]
[…] Plastiq continues to present a lot of interesting opportunities. […]
I think that the Capital One Spark card is one of the most underrated cards out there. The card does give a flat 2% back and this is common. The advantage is that Capital One allows you to redeem for cashback as soon as the transaction posts with no minimum. This way you don’t have to wait till the end of the statement cycle or attain some high minimum for cash out. I redeem my cashback after every purchase.
IF you have it, Why not put $100,000 in a personal B of A account or Merrill Lynch investment account, become platinum preferred, sign up for a travel rewards car (personal version only). Then you will receive 2.625% in travel rewards for every $1 spend. You can write off the 2.5% as a bank fee and keep the 2.625% in travel points for yourself. You may pay less taxes and it could knock you down a tier with the IRS as well. Consider that?
Also, my thought is based on a business being run by a sole proprietor with employees. The sole proprietor gets owner drawings and pays income taxes based on net profits. Your net profits are lower when you add in more Plastiq bank fees. If you are a corporation, it’s a different story.
In my original comments above, I’m coming at it from the perspective of a 2-owner S-Corp. We also have a single-owner LLC (no employees) that’s functionally a sole proprietor (Schedule C filer).
My first aspect is who the benefits accrue to. It’s obviously safer to have those go back into the business but that diminishes the tax advantage and with it, the spread.
Let’s assume though you direct the rewards value to the owner in a way that doesn’t affect your P&L/Schedule C/etc… The other major aspect is the nature of what’s earned. The more toward traditional miles and points you get, the safer you likely are with the whole miles can’t be valued argument. The more you get toward cash back or something with a very clear cash-like argument, the riskier it seems to direct the rewards to the owner.
I have and love the BoA TR with Platinum Honors. 2.625% back is my floor for rewards as a result. It’s also one that I think pushes toward the cash back edge more so than most cards prevalent in this hobby. Even USBank FlexPerks or Merrill+ have more variable value.
One other gray area to me is systematizing something to this scale. $500k+ of payroll, executed across repeated pay periods, whose rewards are cash-like and not accruing to the company is too far for me with regard to it being defensible. And I just can’t justify spending 2.5% of $500k+ to buy intangible benefits like status across many programs (DL, Ritz/Marriott/SPG) or free night certs (e.g. Citi Hilton Reserve).
One thing that could changes things meaningfully for me would be a return of 5%+ interest rates where we could earn on the perpetual float of $41.67k. Add $2,083 of interest to the benefits while doing this all properly on our books and my opinion may change.
These are just my opinions and anyone considering this should consider their situation carefully, possibly in conjunction with a tax adviser and not just a couple people on the internet. 🙂
I considered this quite extensively after being approached by them a couple months ago and we do meet the minimum payroll requirements. We’ve basically decided not to go forward though I keep finding myself wishing I could…
If you systematize the rewards to scale to $500k+ year and deduct the costs as a business expense, you should carefully consider whether the individual receives the rewards or the business. The biggest issue here is that if you push the costs on the business, you may run some significant tax risk having the gains flow out to the individual, especially if they are cash-like. The math below illustrates that if you have the gains go back into the business (reducing travel spend), then you end up with a very small gain even with generous assumptions.
The options are:
*** ACCRUE TO OWNERS – Feels like asking for trouble at this scale and system and with expenses going to business. This is the only way it works IMO but isn’t worth the risk. Math:
3% : Amex Bus Plat card at 1.5 MR / $ ($5k+ charges) valued at $.02/MR. Assumes you can liquidate massive volumes and see these as cash.
-1.67% : 2.5% cost, reduced by tax rate of 33% as it’s a deductible cost.
= 1.33% spread which is a $6,667 value gain on $500k.
*** DEFRAY BUSINESS TRAVEL EXPENSES OR CASH BACK – I like this option but if you use it not to improve the travel experience but to gain actual savings by reducing expenses you’d have otherwise incurred, you lose your tax advantage and the math looks like this:
3% : Amex Bus Plat card at 1.5 MR / $ ($5k+ charges) valued at $.02/MR. Assumes you can liquidate massive volumes and see these as cash.
-1.67% : 2.5% cost, reduced by tax rate of 33% as it’s a deductible cost.
-1% : Since you’re using all those Amex MR points to defray expenses, your costs decline and profit rises by the value of those points. At 33% tax rate and 3% return, this adds 1% to your costs
= .33% spread which is a $1,650 value gain on $500k.
For me, this gain’s not worth complicating our business.
Plastiq’s done a nice job with the service, as good as I could possible expect, but unless your interest in illiquid miles/points is a lot higher than mine, I just don’t see it working.
A few other considerations:
1) If Plastiq provides benefits in terms of your cash flow, that’s a very different perspective and adds value. A 30-60 day float doesn’t help our business meaningfully as we’re sufficiently funded. And if you need a credit card to provide float for payroll, consider your risks. Been there, we came out fine but glad we’ve not been there in years.
2) It’s hard to scale returns past 3% on very large volume. Sign ups won’t really do it.
3) Admin overhead using traditional miles/points for business travel can be high unless you’re already very good at it. Your bookkeeper, office admin, employees likely don’t know how to navigate these types of bookings.
4) Your time and your staff’s is valuable. I’ve been known to use points for some business travel but it’s got to provide very high value before I’m bothering due to this.
5) Increasing spread seems unlikely as it involves Plastiq lowering costs on massive volume or increasing returns. Show me a card that allows > $100k in annual charges with > 3% liquid returns and I’ll be all over it.
6) Do you have partners? If the rewards accrue to the business owners while the cost goes to the business, how do you reconcile this equitably? Do you want to start pushing credit cards onto your business partners?
7) Why not use rewards for intangibles that benefit the business – E.g. gift cards for marketing, improved employee travel, fancy destination company party, etc? To me, miles and points have value and these have costs and should be seen as free. Using the example math above, you’re spending $12,500 (2.5% of $500k) to buy 750k Amex MR. I couldn’t possibly convince myself to pretend these are free.
That seems like a whole lot of effort to save 0.25%. That’s not a great benefit. OK for minimum spend but I wouldn’t do all that for such a small benefit.
I suppose if you’re only reason for doing it is for the sake of the blog, that makes sense as it’s for review purposes. The economics, though, don’t excite me.
Greg
Bummer news. I’ve been looking for a option like this for years. I fall just under the min required also.
Hi Greg – Like you, I was intrigued when I received this invitation from Plastiq regarding Payroll on Plastiq. I spoke last week with a Plastiq rep about the program. The rep said that they have a minimum of $40,000 per month to set up Payroll on Plastiq for a customer. I asked if they would consider an exception for a payroll of approximately $30,000 a month. Plastiq declined to make this exception. So, unless Nick is doing *very* well :-), this may not ultimately be an option for you.
Maybe this post was Greg’s way of saying that I’m getting a raise? 🙂
I mean, if it’s for the blog and it’ll drive content, I’m willing to take on the burden of figuring out what to do with $40K a month.
Oh man, I had no idea they had a minimum or I would have checked that before writing this post!
I was surprised at their minimum, too, and at the amount. The Plastiq rep said that they felt like they needed the minimum because of the amount of work necessary to coordinate and integrate with the payroll provider. That work would seem to be mostly up front, with little continuing effort over time. Given that situation, maybe it’s possible that if someone was willing to commit to using Payroll on Plastiq for a period of several months, perhaps they’d make an exception for a payroll of less than $40,000/month. I didn’t explore this possibility with them. I also had some anxiety about this service because payroll requires 100% reliability in terms of delivering payments accurately and on time, and I have experienced a few unreliability issues in my use of Plastiq.
With a minimum this high, it seems like the potential market for this service is very narrow.
I enjoyed the high-quality and thoughtful comments from B. All good and interesting points.
@Nick Reyes – I tried to help you out with the raise! I’m sorry Greg wouldn’t go along 🙂