How to Earn Miles at Tax Time

Use a credit card to earn miles when paying taxes.

March 9, 2000 - Tax time looms, and visions of airline miles cloud the minds of otherwise right-thinking frequent fliers. What's the connection between taxes and miles? A credit card.

Miles for taxes? Yes, if you pay with an eligible mileage-earning credit card, you can indeed earn 1 mile for every dollar in tax payments to the IRS (for Personal Federal Income Taxes, Extension Payments, and Estimated Tax Payments), and to some state tax authorities as well. But you'll pay a premium to do so.

How it Works...

The Taxpayer Relief Act of 1997 prohibits the IRS from paying the "merchant fees" normally incurred by payees in credit card transactions. So the IRS cannot itself accept credit card payments. Rather, they have contracted with a third party, Official Payments Corporation, to act as an intermediary between taxpayers and the IRS and several state tax services.

Basically, taxpayers make credit card payments to Official Payments for their tax bill (or a part thereof), and Official Payments pays the IRS. But instead of assessing the IRS a merchant fee, Official Payments charges the taxpayer a "convenience fee" which varies according to the amount of the tax payment. Sample fees: $35 for a $1,000 payment, $262 for a $10,000 payment. The tax payment will show as "U.S. Treasury Tax Payment" on the cardholder's statement; the convenience will show as "Tax Payment Convenience Fee."

Official Payments accepts IRS payments by phone or over the Internet at their website. You can only use Amex, Discover or Mastercard. VISA does not participate in this program.

For the 7 states which accept credit card tax payments, the options are as follow:

• California - Telephone and Internet
• Connecticut - Telephone only
• District of Columbia - Telephone only
• Illinois - Telephone only
• Minnesota - Telephone and Internet
• New Jersey - Internet only
• Oklahoma - Internet only

You can, incidentally, use your card to pay someone else's tax bill, not just your own.

For couples filing jointly, the credit card must be in the name of the taxpayer listed as the "primary filer" on the tax form.

Should You Pay Taxes with a Credit Card?

Having established that you CAN earn miles for tax payments, the follow-on question is: Should you? There are 2 key factors to consider, convenience and cost.

On the cost side, since you earn 1 mile for each dollar charged, the convenience fee amounts to paying between 2.5 and 3.5 cents per mile earned--lower per-mile prices for larger payments, higher per-mile prices for smaller payments.

Here's 1 way to look at the value proposition: to earn the 25,000 miles required for a free award ticket in most programs, you'd pay off a $25,000 tax bill, incurring a $699 convenience fee. Since you could probably purchase a ticket for less than $699, you would arguably be overpaying for the miles. At the other end of the spectrum, if you had 24,000 miles in your account and just needed an extra 1,000 to qualify for a free ticket, the $35 fee might be more than acceptable, even though 3.5 cents per mile is pricey.

As far as convenience goes, if you can afford to pay the tax bill on time, there's not much convenience to speak of. If you simply can't afford to pay your tax bill in full by the filing deadline, the ability to pay off your taxes over time could be a selling point, but the credit card interest rates would have to be compared with loan rates, on the one hand, or IRS late fees on the other.

You'll have to decide if the miles and convenience are worth the extra cost. If you do go the credit card route, be sure you have sufficient available credit on your card to cover the payment. Otherwise you run the risk of late-payment penalties. And taxes are injury enough, without adding the further insult of added costs.

More Information

• You can learn more about credit card tax payments at the website of Official Payments Corp., which handles these transactions. They're at http://www.officialpayments.com/.
• For further information by phone, call Official Payments customer support at 1-877-754-4420.
• If you've decided to pay by credit card, and want to do so by phone, call 1-888-272-9829 (1-888-2PAY-TAX).
• The IRS website is at http://www.irs.gov.