One of the great things about running a successful business (Frequent Miler) is that I get to pay a lot in taxes. I know, I know… “great” and “taxes” don’t usually go together, but since it’s possible to pay taxes with a credit card (see our guide here), I appreciate the opportunity to meet minimum spend requirements for new card welcome bonuses, to spend my way to elite status, or to simply earn a profit by using a card that earns more cash back than the tax payment fee. It ought to be easy… and it usually is… but I messed up this time. Here’s the story…
How I accidentally paid taxes with my wife’s card…
My intention was to pay most of my tax bill with my Bank of America Travel Rewards business card. Thanks to having Platinum Honors for Business, the card earns 2.62% back towards travel. But the rewards are not really just for travel: I can move the points to my Premium Rewards card and then cash them out as needed. So the card functions as a 2.62% cash back card for me.
Currently, you can pay your taxes through two primary payment-processors with the following fees:
- Pay1040:
- Credit Card: 1.75%
- Commercial Credit Card: 2.89%
- ACI Payments:
- Credit Card: 1.85%
- Corporate Credit Card: 2.95%
In both of the above cases, when using my 2.62% back Bank of America card, I would earn a profit if charged the standard credit card fee (1.75% or 1.85%).
I started with Pay1040 since it has the lowest credit card fee of 1.75%. Unfortunately, Pay1040 treated my card as a Commercial Card. They wanted to charge 2.89%. No thanks! I tried paying through PayPal just in case that would make my card look like a consumer credit card. That didn’t work. Pay1040 still wanted to charge 2.89%.
Next, I tried ACI Payments. On my first attempt, the system simply refused to process my payment due to it being a business card. That’s OK, our guide to tax payments has the answer: pay via PayPal. So, that was my next attempt…
By selecting to pay with my Bank of America business card via PayPal, ACI Payments was fine with the card and showed that it would charge me only 1.85%. Perfect. I clicked the button to process the payment and received an error message. The payment didn’t go through. The payment amount was very close to the available credit on my card so I figured that maybe I had gone over the limit.
I tried again with a slightly smaller tax payment. This time I got a text message from Bank of America saying that the payment was declined and asking if I had used my card for that amount. I replied Yes and it said to reattempt the charge. Fine…
After clearing the fraud alert, I attempting the charge yet again. This time, there was no message from Bank of America, and ACI Payments said that the purchase was successful, but I got texts from three other banks saying that the charge was declined. Whaaaat!!!? It took me a beat to realize what had happened. PayPal apparently decided on its own initiative to march through the credit cards in my PayPal wallet and charged each one until the charge went through. The one that accepted it was my wife’s Business Platinum card. And the card that accepted the 1.85% fee was my Hilton Surpass card.
Next time: Clear PayPal wallet first!
Over time I’ve added credit cards to my PayPal Wallet for whatever random reasons there were at the time. Now I need to clear them all out, especially before making any more purchases through PayPal! If the card I intend to charge declines a purchase, I want to know about it. I don’t want those charges going to other cards!
It could have been worse
With many cards in my PayPal Wallet, I would have earned only 1 point per dollar from this spend, but I earned 1.5x instead. The Business Platinum card earns 1.5 points per dollar on purchases of $5,000 or more and the tax payment easily qualified for that. With the 1.85% fee, it was like buying Membership Rewards points for around 1.2 cents each. Since we’re already flush with Membership Rewards points, that’s not a price that I’d go out of my way to pay, but I’m also not too upset about it.
Even the fact that the 1.85% fee was charged to my Hilton Surpass card turned out fine. I want to complete $15K of spend on that card this year in order to earn a free night certificate. This got me a little bit closer to that goal.
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Over the weekend, I did the same thing. But, I had a new Amex Gold Business that I had to use to hit the SUB. So, before attempting the payment, I deleted all my cards and my bank account from PayPal. PayPal used the right card, because I deleted everything else.
Thanks for sharing, Greg…your pain is our gain.
I removed all cards from my PayPal account after reading your article.
I don’t get how cards get coded as business cards, all of my personal AMEX cards have been subject to the business card fee so it’s lucky that your Hilton got the lower one.
One thing I’ve always wondered is why anyone would ever choose ACI since their fees are higher no matter the option. You’d think they would be more competitive, but I guess enough people use it (like in your story although I doubt many people will have such a niche use case).
If you have a US Bank Cash Plus with utilities selected as one of your spending categories, paying ACI via Paypal will net you 5% cash back.
I too had similar a hiccup, but unfortunately I realised too late. I had approx $1,500 left to pay after splitting up payments to meet MSR and I saved it for a Chase Freedom Ultd promotion I’d received for 5x points on PayPal purchases.
I paid via Pay1040 and it didn’t even occur to me to check that I wasn’t charged the 1.75% fee. Found out later that Pay1040 decided the CFU was a commercial card and charged me at 2.89%. Ugh. Extremely annoying but not fatal since it was about $20 extra.
Best is to use US Bank Smartly Visa. 4%
Thanks for this valuable information! I, too, would like to accidentally pay my taxes with your wife’s Business Platinum.
I chuckled. Thanks for that!
LOL
Same here.
While trying to read your post the Let’s Birthday ad tried to take over my screen on Android, coming in from the sides and bottom.
Thanks for letting us know. We reported this issue again to Boarding Area
Greg, thanks a million for this post. I’m in South Africa right now but even from here using Google Fi I was able to hike my PayPal MC credit limit to cover my est tax pmt. I also cleared all the other cards from my PP “wallet” (which isn’t a thing) but I did find all the cards in my PP acct after searching the acct for a while. Great way to kill an hour on the bus ride back to Joburg from the safari.
The same thing happened to me last week. It charged the card I intended for the 1.85% fee but it redirected the large tax purchase itself to a checking account. Thankfully, that checking account had all of $100 in it, so the payment was destined to decline, but I was really upset nonetheless.
As a data point, I emailed both PayPal and ACI immediately, and to their credit ACI emailed back cancelling the transaction within 30 minutes. I was able to re-do it successfully after removing all other credit cards and checking accounts from my PayPal account.
Also a reminder: ALWAYS take screenshots, as the PayPal dispute cancellation form I had to complete asked for proof that the wrong payment method was used.
Thankfully, it sounds like ACI is OK with canceling transactions. PayUSATax back in the day refused to cancel/refund payments for any reason other than fraud, even within 15 min. I don’t believe PayPal will help; I got my case routed to a senior leader at PayPal and he said there’s nothing they could do.
THis has also happened to me. I also learned to clear out the CC on paypal and leave the one I want used on the account.
Watch out, though–this happened to me a couple of times, and PayPal marched right on through to just pull an ACH from my checking account. It was only for a small electric bill, but that could hurt on a large payment.
The bank account linked to my PayPal has about $10 in it. I’d never give PP access to my primary hub bank.
Now I need to go check what cards are linked, though.
I likewise do not have a primary bank tied to PayPal, but that is not enough to avoid a problem like this. Several years ago, something happened (I do not remember details now) and PayPal defaulted to a bank I was no longer using and had zeroed out, but had not yet cancelled. I was then left with an overdraft charge at that “friendly” local bank after they accepted the charge on an obviously dormant account.
I never keep more than my one current card at paypal, but I could see this happening to me some other way.
Same thing happened to me…
“Error” then I paid again only to have paid $27k twice!
Good thing they were quickly able to void the payment…
I can relate. I recently did this and paid a huge tax bill with my wife’s AA executive card, which would have given me a big push towards my next AA elite level and hit some spending bonuses.
If I understand your post correctly, the actual taxes and the processing fee went to different cards, none of them being the one you selected ? At least you got some rewards out of it. The backup of debiting your checking account would have been worse.
True. Much worse