Someone at work thought there was a way to earn frequent
flyer miles on my tax payments. But he didn’t know details.
And I cannot seem to find any information elsewhere. Can you
shed any light on this?
Yes, you can earn miles for tax payments. Although it’s not exactly a case of the government’s rewarding you with miles for being a good citizen. And you WILL pay a premium.
Basically, you use your mileage-earning credit card to pay taxes, and you earn miles according to the amount of the payment just as you would for any other charged purchase, typically at the rate of one mile for every $1 charged. So, if at year’s end, you owed the IRS $10,000 and made the payment with a miles-linked card, you’d earn 10,000 miles.
So far, so good. The fly in the ointment is the “convenience fee.” Since the IRS is prohibited from paying merchant fees assessed by credit card companies, they were forced to appoint an outside company, Official Payments Corporation, to handle credit card transactions on their behalf. And to make their intermediary role a financially viable one, Official Payments charges credit-card users a 2.5% fee. Using our $10,000 example, if you elected to use your frequent flyer card to make the payment through Official Payments, here’s what you’d get, and what you’d pay to get it:
|Convenience fee (2.5%)||$250|
There are two ways to evaluate the above. If you’re on the hook for $10,000 in taxes and need extra time to pay that off, a credit card charge which can be paid down over time might be a reasonable solution. In which case you could think of the miles as a welcome bonus. Alternatively, if you can afford to pay your tax bill in full, and are considering using a credit card solely as a way of earning the miles, $0.025 per mile is no great bargain. Think of it this way: at that rate, you’d spend an extra $625 (25,000 miles @ $0.025) to earn enough miles for one free domestic roundtrip ticket. That’s substantially more than the average cost of a regular coach ticket.
If, on balance, this looks like something you wish to consider further, visit the Official Payments website. For IRS payments, they accept American Express, MasterCard, and Discover. Some states and local tax authorities accept credit card payments through Official Payments as well.