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Earning Miles for Taxes: Not Always a Good Idea

For at least a decade, it's been possible to earn frequent-flyer miles for paying federal taxes, and some state and local taxes as well. It's not difficult to do, but the associated costs generally outweigh the benefits.

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Miles are earned by paying tax bills with a credit card linked to a travel-rewards program. Most such cards award one mile for every $1 charged, so a $1,000 tax payment would generate 1,000 frequent flyer miles.

But since the IRS does not accept credit card payments directly, taxpayers must charge payments through companies authorized by the IRS to make collections on their behalf, including ChoicePay, Official Payments or Pay1040.

Charging the miles comes at a price. The payment processors impose "convenience fees" ranging between 1.88 and 2.35 percent of the amount charged for federal income tax payments. If you consider the surcharge to be the price of earning those miles, you're paying around 2 cents per mile. Since miles are normally valued at 1.2 cents each, that's on the high side. Which explains why miles-for-taxes has never gotten much traction among mile collectors.

Of course, the above assumes that you're earning one mile per $1 charged, and that you're charging the payment to a credit card solely for the purpose of earning miles.

If your credit card awards more than one mile per $1, the value proposition improves proportionately. And in the past, airlines have occasionally offered double miles for tax payments, with the same effect.

Different considerations apply as well if you're using a credit card because cash is scarce and the goal is to pay on time to avoid interest and penalties. In that case, the convenience fee is rightly so called and the miles are icing on the cake.

Reader Reality Check

Have you earned miles for tax payments?

Was it worth it?

This article originally appeared on FrequentFlier.com.


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