What Credit Card Should You Use to Pay the Taxes on Your Award Ticket

30
5297

The offers for the cards listed in this post have expired, so their links have been removed. Click here for the top current credit card sign up bonuses.

A reader emailed me to ask what card she should use to pay the taxes on a United award:

I’m trying to book an award ticket on United ORD-EZE-ORD. [Scott: Chicago to Buenos Aires, taxes are about $82.]

Which credit card would you suggest I use to pay the fees and are there any particular advantages to one or the other?  We have United Explorer, United Club, Barclay Arrival, Sapphire Preferred, Starwood, Amex Platinum, and some that I imagine you wouldn’t recommend (Freedom, Citi Aadvantage, Barclay US Airways, Citi Thank You Preferred, Ink Bold).

Of the cards she has, she should use either the Sapphire Preferred or the Barclaycard Arrival(TM) World MasterCard® – Earn 2x on All Purchases.

If she had the American Express® Premier Rewards Gold Card or The Business Gold Rewards Card from American Express OPEN, those would also be great options.

Under no circumstances should she use her United card for this purchase.

Why should she use the Sapphire Preferred, Arrival, Premier Rewards Gold, or Enhanced Business Gold card to pay the taxes on her award ticket?

The reader asked about the taxes on a United award but the advice given will hold for all taxes/fees/fuel surcharges associated with award tickets on any airline.

The four options I’ll consider are:

  • co-branded airline card (ie United card for a United award, US Airways card for a US Airways award)
  • Sapphire Preferred
  • Arrival Card
  • Premier Rewards Gold Card / Business Gold Card

For each option, I’ll imagine a United award with taxes of $100 to make the numbers easy to compute.

Co-Branded Airline Card

You should not use a co-branded airline card–like the United card–to pay the taxes on an award. Co-branded cards generally earn 2 miles per dollar on purchases with their airline, so paying the taxes would earn 2 miles per dollar.

Taxes of $100 would earn 200 airline miles.

We can do better.

Sapphire Preferred

The Sapphire Preferred earns 2 Ultimate Rewards per dollar on travel purchases. Any transaction with an airline including paying the taxes on an award will earn 2 Ultimate Rewards per dollar.

In addition, every January or February, you receive a 7% bonus on the points earned the previous calendar year (excluding the sign up bonus.) That means you can end up getting 2.14 Ultimate Rewards per dollar for paying the taxes.

Taxes of $100 would earn 214 Ultimate Rewards.

Ultimate Rewards are more valuable than United miles for their flexibility since they can transfer to United miles 1:1 or to nearly a dozen other airline miles or hotel points.

Arrival Card

The Arrival Card is an intriguing option. All purchases on the Arrival card earn 2 miles per dollar.

Paying taxes of $100 would earn 200 Arrival miles.

Then you can redeem your Arrival miles to eliminate the $100 from your statement. You would need to redeem 10,000 Arrival miles to remove a $100 charge from your statement. (See How to Redeem Barclaycard Arrival Miles.)

Upon redemption, you would automatically have 1,000 Arrival miles credited back to your account since all travel redemptions get an automatic and instant 10% miles rebate with the Arrival card.

Using the Arrival card means paying nothing in taxes (because we redeemed Arrival miles) and ending the transaction down 8,800 Arrival miles. (10k redeemed – 1k rebated – 200 earned.)

Premier Rewards Gold Card / Enhanced Business Gold Card

Both the Premier Rewards Gold Card and Business Gold Card earn three Membership Rewards per dollar on airfare.

Both charge a 2.7% foreign transaction fee. If you are booking an award with a US-based airline’s miles (like United miles), this fee will not come into play no matter where you fly on the award.

If you are booking an award with a foreign airline’s miles, you will probably have to pay this fee even if the taxes are quoted in dollars. (I unwittingly had to pay a foreign transaction fee on the taxes on a British Airways award priced in dollars because the transaction was considered foreign.)

Paying $100 in taxes would earn 300 Membership Rewards.

Comparison

Here’s a table summarizing the information above. The chart imagines using each card to pay for $100 in taxes on an award. The Arrival entry also includes the effects of redeeming Arrival miles to remove the $100 charge from your statement.

Screen Shot 2014-02-10 at 11.04.17 PM

You can see that there are two very different ways to go about paying the taxes on an award. You can use the Arrival card and end up not paying the taxes out of pocket.

Or you can use another card that earns a category bonus and try to ratchet up the earnings. Of the “earning” cards, the Premier Rewards Gold and Business Gold are the best as long as the transaction won’t incur a foreign transaction fee.

Which is better between earning points and redeeming Arrival miles?

That depends on whether you want to earn more points or redeem points, which in turn depends on how much cash you have versus how many points you have. It’s an individual question with no answer that’s right for everyone.

I’ve laid out the options–and ruled out several–but it’s up to you to decide which card is right for you when it comes time to pay the taxes on an award.


Editorial Disclaimer: The editorial content is not provided or commissioned by the credit card issuers. Opinions expressed here are author’s alone, not those of the credit card issuers, and have not been reviewed, approved or otherwise endorsed by the credit card issuers.

The comments section below is not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved, or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all questions are answered.

If you liked this post, sign up to receive one free daily email every morning with all of the day’s posts! You can also follow MileValue on Twitter and Facebook.

30 COMMENTS

  1. IMO the best card is the Sapphire Preferred. Not only will you be earning points, but then your flight will be covered by the card’s insurance for flight delays/cancellations. I’ve never had to use it, but knowing that I’ll get reimbursement for travel expenses as a result of the delay is great peace of mind (and an actual financial help if I needed to use it).

  2. Only one small caveat to the never use the co-branded credit card and this only applies to united for people without status. If you are going to check bags and want to do it for free you would need to use the united card. In this case they will receive one bag for free for the route no matter which card they use but if they used their united club card to pay, they would also get the second checked bag free, a $70 dollar savings. So if you are a heavy luggage user and need to check bags it actually might be beneficial to use the co-branded card, although generally I would pack light and get the extra points in the way you have stated.

  3. Why wouldn’t you use thank you preferred? I’d use it hands down for the flight points since the flight is over $50

  4. Thanks for the analysis, but what if I didn’t care about miles and only cared about travel insurance? I have the usual cards from Chase (but no CSP), BofA Alaska, Citi AA MC and Visa, Barclays USAirways, and Club Carlson.

  5. Don’t you have to use the United card to get free bags and priority boarding? You don’t think that is worth the loss of what seems to be two or three dollars worth of points from using an Amex or Sapphire?

    • Patrick, Christopher, and Janice: You do NOT have to use your United card to pay for the ticket in order to get the free bag (etc) benefits. It’s linked to your MileagePlus account and as long as you have your MP# in the reservation, you’re covered.

      • Hans, this is not correct. I’ve testing it myself when flying on a ticket paid for by my company, and yes I did have my MP# on the reservation. If you do not have status, you must use the ME card to get the free checked bag. You do not need to use the card to get Priority boarding. On an international flight on United, though, you do get 1 free checked bag anyway, so for this itinerary, it provides no benefit.

        • OK, that’s just changed. It didn’t used to be that way. But you are correct. It is that way with United now:

          Save up to $100 per roundtrip. The primary Cardmember and one companion traveling on the same reservation will receive their first standard checked bag free ($25 value for the first checked bag, each way, per person) on United-operated flights when purchasing tickets with their United MileagePlus Explorer Card.

    • International flights allow for one free checked bag. You wouldn’t get a second free one just for using the United card.

  6. I have the American Airlines Citi card, which gives you your first checked bag for free on domestic flights. But according to both Citi and AA, you have to use that Citi card to pay for the taxes on a FF ticket to get the free checked bag – I was denied this privilege recently because I used another card to pay the $10 tax on a Hawaii ticket. That’s $50 right there, RT.

    • That was incorrect information. The problem was you didn’t have your linked AAdvantage number on the reservation. Here are the T&C:

      † First checked bag free
      For benefit to apply, the Citi® / AAdvantage® account must be open 7 days prior to air travel AND, reservation must include the primary cardmember’s American Airlines AAdvantage® number 7 days prior to air travel. If your credit card account is closed for any reason, these benefits will be cancelled. Eligible Citi® / AAdvantage® primary cardmembers may check one bag free of charge when traveling to domestic destinations on flights marketed and operated by American Airlines, or on flights marketed by American Airlines and operated by American Eagle Airlines, Inc., SkyWest Airlines, Inc., ExpressJet Airlines, Inc., Republic Airline Inc., or Chautauqua Airlines, Inc. These benefits will not be available for travel on US Airways flights or codeshare flights booked with an American Airlines flight number but operated by another airline. For the Citi® / AAdvantage® card, up to four customers traveling with the eligible primary cardmember will also get their first checked bag free of charge if they are listed in the same reservation. Waiver does not apply to overweight or oversized bags. This benefit cannot be combined with any existing AAdvantage® elite program benefits, including any waiver of baggage charges. Please see aa.com for baggage weight and size restrictions. Additional terms, conditions and restrictions may apply. Applicable terms and conditions are subject to change without notice.

  7. Same question as Patrick McCann. I though we had to use the United card for taxes and fees to get the free bag perk.

  8. But if you do not have status with United, would it not be better to use the United co-branded card to pay the taxes and fees to take advantage of the card benefits – no checked bag fee, priority boarding, etc.?

  9. As the replies show, many CC holders rely on those credit cards to get perks while traveling. Those perks are worth real money, especially to those that don’t have status.

    However, it all depends on what class the traveler is booking in. If the tickets are in F, the tickets should include free bag allowances, priority boarding, and lounge access. At that point, I would use Arrival/Sapphire. If coach, then it may be worth it to use the MileagePlus card to keep those benefits. Of course those considerations should go into the decision of whether to book coach or first.

    This illustrates the importance of recognizing what ancillary benefits you get by booking in various classes, especially when booking short hops intra-Europe or intra-Asia. For example Avios costs 4,500 for short hops in coach but 9,000 in business within Europe. While the Europe business class flight itself may not appear to be worth it, it comes with lounge access and free bags; the baggage allowance could save hundreds.

  10. I agree with the above posters: if the reader has a bag she wants to check and is flying in coach, she should ABSOLUTELY use her United card, otherwise she’ll be paying big baggage fees! It’s happened to me on United before when I used the ‘wrong’ credit card to pay for a ticket; despite being an Explorer cardholder, I had to pay to check my bags.

    • I don’t fly United. Do any of the United credit cards offer any additional free baggage to South America? Sadly, on American the free bag beni is only good on domestic flights.

  11. What about the Citi TY card? She says it’s a no-brainer NOT to use it, but if it’s over $50 in taxes you’ll bank the flightpoints for the award travel. That’s a no-brainer to use it in my book, especially for int’l awards with many miles flown. TY points are great for domestic flights. You can use it at 1.33 cpp no matter how few points you have, then the rest is paid in cash.

    • I thought the flight points benefit is deceased on the TY. Am I wrong? I had read it was going away the end of 2013 and I could not find it listed in the benefits on the card’s website. Sadly I learned about this benefit by reading it was going away and tried to research the card to see if it was true. Had a hard time finding an answer.

  12. You are forgetting insurance. The platinum card will pay your heirs 500000 dollars if you die in a plane accident, so long as you charged the award ticket to your platinum card. This is a very nice benefit to consider.

  13. The example is an international flight, so the checked bags are free anyway. Just pointing that out. Anyway, like the other comments, I was under the assumption that you had to use the card to get the card benefits for a flight. I swear I’ve seen it in the card T&C, but I could be wrong.

  14. One problem I had several times when booking with United was being charged the close in booking fee when not using the United Club card when paying taxes. It wouldn’t happen every time but when it did, it always meant long waits on hold with Chase and United to get the fee reimbursed. This only happened when paying the taxes online. The $75 fee wouldn’t show as part of the charge online, but it would often (but not always) appear on my bill as a separate charge.

    The way I found to avoid this problem was to call United once I had my reservation ready online and pay over the phone instead. When I started doing this, I never was charged the close in booking fee again.

    Anyway, I don’t have to worry about this in the future, because pre-devaluation I burned all but about 90 of my United miles for several international first class award tickets on Lufthansa, Thai, ANA and Asiana.

  15. Our inquiry here relates specifically to United, so citing American’s terms and conditions may not be dispositive. Another travel blog quotes United’s terms and conditions as follows:

    “To receive first and second checked bags free, the primary cardmember must include their MileagePlus number in their reservation and use their MileagePlus Club Card to purchase their ticket(s).”

    Here is the post: http://thepointsguy.com/2014/02/can-you-still-get-the-benefits-of-the-united-club-card-even-if-you-dont-use-it-to-purchase-tickets/

    I like both of your blogs, and I’m not trying to advertise for anyone else, but if these terms and conditions are correct, you’re leading your readers down the primrose path if you tell them not to worry about using the United Card without giving the caveat that they might get stuck with a bag fee that far exceeds the marginal benefit of a few extra points.

  16. I think travel insurance should be a bigger factor than extra points. In my experience, Chase UE and Sapphire Preferred cards (and I’ve heard Citi) have the best delayed/lost baggage and general trip madness reimbursement. You have to document everything – lost baggage reports, proof the card was used, receipts for clothes, toiletries , ect. And, officially they don’t have to reimburse if you didn’t put the entire cost of the ticket on their card. That means award tickets are not covered. But, I find Chase UE and Sapphire (who both offer the insurance through Chubb) let that slide. Amex does not.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.