The Taxman Cometh:

The Taxman Cometh:

Will Rogers once wrote, “The income tax has made more liars out of the American people than golf has.” Of course, the one is infinitely more appealing than the other. Whether you loathe paying your taxes, or simply despise it, the time has come once again to fill the government coffers – but this year there might be something in it for you.

Nobody enjoys forking over hard-earned wages to the government. But if you’re going to do it anyway, you might as well earn some miles while you’re at it.

Since 1999 taxpayers have had the opportunity to pay their federal and state taxes by credit card. Now you can even take care of city and property taxes this way as well.

You’ve heard stories about hip taxpayers using credit cards to pay what they owe the IRS so they can rack up frequent flyer miles. Well, so have we. Take, for instance, one taxpayer who last year settled his $4 million tax bill with the IRS by using his mileage-earning credit card. It was problematic for the transaction processor, Official Payments Corp., since it had to split the tax payments into several lumps to overcome the credit card account limits, but at the end of the effort the taxpayer, Official Payments Corp. and the IRS were all happy. You’d be happy, too, if you were 4,000,000 miles richer. Sure, the convenience fee for this method was some $100,000, but let’s see if it made since for this particular taxpayer.

Four million miles equates to about 40 to 50 first-class tickets from the U.S. to Europe, Asia or Hawaii. (The person paying that type of tax will surely want to fly in that class of service.) The average price of an airline ticket to those destinations? $5,500. Total airfare cost for this amount of travel? Between $220,000 and $275,000. So, for his $100,000 convenience fee, we’d say he made another good investment. Oh, did we forget to mention that this was without figuring in the “double miles” promotion that the taxpayer’s credit card of choice was offering?

Yes, the man earned 8,000,000 miles.

Yes, when used to earn the maximum value from award redemption, these miles were worth nearly a half million dollars.

But is this the way we mere money mortals should look at the idea of paying taxes – using a credit card simply to earn miles? No. Each person asking this question will be driven by different factors. For some, the idea of paying a convenience fee is absolutely shocking; for others it will be tempting but a struggle to make the numbers work. And then there will be those of you for whom, after reading this, the biggest dilemma will simply be trying to determine which of your multiple frequent flyer cards is best to use.

So let’s run down the questions … and the answers.

Ease beats expense

Let’s first go over the convenience fee that we have referred to. If you didn’t already know, the IRS is prohibited from paying “merchant fees” normally charged to businesses by credit card processing companies. So the IRS set about authorizing other companies to collect taxes on its behalf; the processing firms, in turn, collect a “convenience” fee from the taxpayer, not the IRS itself. The middleman’s “convenience fee” ends up being 2.49 percent of the total payment.

That comes to 25 bucks if you owe $1,000 in taxes, for example, and $500 if you owe $20,000. (Don’t forget that’s on top of any interest you pay on the credit card balance.) Potential extra costs, however, apparently don’t bother some taxpayers because paying by credit card is a growing trend: In 1999, Official Payments Corp., one of only two third-party companies authorized to collect taxes on behalf of the IRS (the other is Link 2 Gov), collected $320 million in taxes. By 2004 that total had grown to $1.4 billion.

Because more and more taxpayers are opting to charge their tax bills each year, the IRS has even expanded the type of taxes it will let taxpayers charge.

Taxpayers of federal quarterly estimated taxes now can charge those four extra amounts throughout the year, not just in April. Then there are the state taxes and property taxes that can earn miles and points as well.

How is this accomplished? The process is relatively simple. First, decide which mileage-earning card has room for your tax debt. Then visit either processing company’s Web site or call their toll-free numbers. Five or six steps later, your payment is made. The steps are:

1. Select the type of tax – federal, state or local.

2. Enter the required information: credit card being used, account number, etc.

3. Accept the terms such as the convenience fee.

4. Complete details such as your contact information.

5. Confirm details of the transaction.

6. Get your digital receipt via an email confirmation.

In addition to Official Payments Corp. ( and Link2Gov (, most tax software programs allow you to pay electronically, and that includes by credit card. Official Payments Corp. has partnered up with the popular TurboTax program so you can still earn miles regardless of which method you use for preparation. The convenience fee is still charged in these cases, but it goes to the software vendor, who then transmits it to the card processor. The software companies don’t charge extra for e-filers who say “charge it.”

But before we get off the “convenience fee” topic, let us tell you how to beat it. In a pilot program that Official Payments Corp. conducted with American Express Membership Rewards, they tested (with great results) the idea that members of this highly popular program could eliminate the “convenience fee” by using one of the benefits of that program — the ability to pay the convenience fee by redeeming Membership Rewards points. No fee, many more miles and points. What a wonderful combination of benefits. OK, now what’s your excuse for not wanting to pay taxes?

Are frequent flyer miles that valuable to you?

The answer to this question should be fairly obvious to those reading InsideFlyer. And the idea that these miles are valuable to you is echoed in some of the statistics that Jim Weaver, chairman and chief executive officer of Tier Technologies, which owns Official Payments Corp., shared with us in a recent interview. In quantitative market research done after the 2003 tax payment season, 31 percent of those paying taxes by credit card to Official Payments Corp. cited earning membership rewards, a la frequent flyer miles, as the reason they were paying taxes by credit card. And even more interesting, 67 percent of those same taxpayers said that this convenience actually increased the value of the frequent flyer credit card they were using. Weaver thinks that survey results from the upcoming 2004 tax payment season will be similar.

Just another purchase

Another factor boosting the popularity of charging taxes: We view these transactions as just another purchase.

Taxpayers pay the IRS by credit card for the same reasons they regularly pay with plastic. It’s convenient, it allows them to put off paying a bill for a month, and, in many instances, it’s a way to rack up frequent flyer miles or other bonus points.

Using credit cards to pay Uncle Sam isn’t right for everyone. You have to factor in the convenience fee you’re charged when you make your tax payment. Will the value of frequent flyer miles outweigh that fee?

Increasing interest

For the credit card option to make sense, a taxpayer also must pay the credit card company promptly to avoid incurring interest.

Some credit cards that offer frequent flyer miles or other bonuses also charge a higher interest rate, so you could end up paying thousands of dollars in interest if you elect to pay only the minimum due each month.

You’re not off the hook either if you have a low-interest rate card or you shift your balance over to one. That’s because the credit card companies will quickly charge you the usual higher market rate even if you are one day late on a payment.

This method also is available through use of convenience checks that many card issuers periodically include in billing statements. However, these checks generally come with their own fees. And while many cards offer low introductory rates to encourage use of the checks, the ultimate interest could end up higher than what’s charged for regular plastic purchases. Interest rate information may not be listed on the check, so check your cardholder agreement or call the issuer.

These costs could, depending on what you owe Uncle Sam, match or outpace what you would have paid by simply charging your tax bill.

Though there is probably no way to completely alleviate the pain of tax season, the following promotions might serve as a soothing balm.

Tax Preparation

American AAdvantage, Delta SkyMiles, United Mileage Plus, Best Western Gold Crown Club and IHG Priority Club are among those programs offering promotions this tax season with partner H&R Block.

American AAdvantage, Delta SkyMiles and United Mileage Plus members who file with H&R Block for the first time through one of its retail offices will earn 1,000 bonus miles. Returning H&R Block customers and those who file online will earn 250 bonus miles. Those respective Web sites are:;; and

Gold Crown Club International members who are new clients to H&R Block can earn 200 bonus points when having their taxes prepared and filed through a participating H&R Block office. GCCI members who already are clients of H&R Block and use its tax preparation service can earn 75 bonus points by filing taxes through select H&R Block locations or online at

Elite members of GCCI can earn 225 bonus points if they are new clients and file through a participating retail H&R Block tax office; existing elite clients will earn 100 points when filing through participating offices or 75 bonus points when filing online.

Priority Club members who file with H&R Block for the first time through one of its retail offices will earn 1,500 bonus points. Returning H&R Block customers and those who file online will earn 500 bonus points. Visit

And in case you are wondering, a “new client” is one who did not complete a 2003 tax return with H&R Block, while a returning client is one who did complete a 2003 tax return at an H&R Block participating office.

Tax Payment

Delta, United and Starwood are all offering promotions that allow members to earn double miles/points when using select affinity credit cards to pay their 2004 income taxes.

Delta SkyMiles members will earn double miles for taxes charged to their SkyMiles American Express credit card between Feb. 15 and April 15. Payment must be made through Official Payments Corp.

United Mileage Plus members will earn double miles for taxes charged to their Mileage Plus Visa credit card on all federal, state, property taxes or quarterly estimated taxes paid through Dec. 31. Again, payment must be made through Official Payments Corp.

Starwood Preferred Guest members will earn double points for taxes charged to their Starwood Preferred Guest Credit Card from American Express when paying federal income taxes between March 15 and April 15. Members will earn double Starpoints on the first $5,000 in federal tax payments. Payments can be made via Official Payments Corp. or Link2Gov Corp. (

Note: Some credit cards have annual or promotional caps on the number of bonus miles you can earn. It would be wise to ask first should you be blessed with an extremely large tax bill payable by credit card this year.

So, before making your payment, compare the price of the convenience fee to the number of miles you would earn to determine if you are getting a good deal. As was the case of the man who earned 8,000,000 miles, the value of the miles you’ll earn is solely dependent on the way in which you plan to use your rewards.

Let’s face it: Given the choice, we’d much rather be spending our hard-earned wages on greens fees. But hopefully this year, the income tax will at least drive more of our readers to higher mileage status.

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