Don’t Pay Your Taxes With a Credit Card

April 4, 2006 psipsina

The Red-Haired Boy and I looked into paying our taxes by credit card this year.  I thought it would be nice if we got the American Express points.

The IRS makes the same argument on its web site, too:  pay your taxes with a credit card, and get whatever rewards your credit card issuer offers.

Cool, I thought.  Then I read the fine print.

The IRS allows the private companies with which it has contracted to charge fees of between 2.49% and 3.00% for collecting the money and passing it on to the IRS.  This means that you pay an additional 2 and a half to 3 cents for every dollar you owe Uncle Sam.

An American Express Rewards point is worth about 1 cent.  (For example, I can cash in 2,500 points for a $25 gift certificate.)

Net “benefit” to me:  I pay some third party 1 and a half cents on the dollar for the privilege of paying my taxes.

So if, hypothetically, I owe $500, I pay $512.50, and get 512 rewards points, which are worth $5.12.  Net cost to me to pay my taxes:  $12.50 fee minus $5.12 worth of rewards points = $7.38.  (It’s even worse if I don’t pay off my balance when the statement comes, since interest accumulates on the debt.)

Net cost if I write a check:  one 39-cent stamp.

I think I’d take the $6.99 I’d save and put it in my vacation savings account.

I will grant that, if you do not have the money to pay your tax bill, using a credit card could be beneficial.  If your credit card rate is low, you may come out better than if you have to pay interest and penalties to the Fed.  But if you can afford to pay your taxes outright, you should send a check.

Use Your Credit Card and Get Reward Points is a massive ripoff, and yet unsurprising.  After all my years working in the banking so-called “regulatory” industry, I can attest that the United States Treasury does not, in fact, have the American public’s best interests at heart.

Still, it disgusts me to see just how coy they are about it, attempting to persuade the taxpayer to line the pockets of some third party and making it look as though it’s beneficial to the taxpayer.

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