Anyone paid Income Taxes with Rewards Credit Card?

[planada]

I think I have seen this addressed in past years, but cannot locate it at this time. Has anyone come up with a "creative" way to pay your income taxes with the Marriott Rewards Credit Card to utilize the points. I know paying the Federal government directly with a credit card involves a 2.5 %(approx?) service fee. I remember someone saying they had gone on a cruise, got casino chips with their credit card, cashed in the chips and deposited the cash in their checking account for which they wrote IRS a check. Any other suggestions? I want those 70,000 points!

 

[Dave M]

Using your Marriott Visa card to pay taxes would be a really lousy deal. Most valuations of Marriott points come in at around one cent each, even though there are scenarios that value them considerably higher.

At one cent each, you would be paying 2.5 cents for every one cent in value that you earn.

As further proof of the poor value, you can purchase some points from Marriott for one cent each ($10 per 1,000 points), when needed for an award.

I believe the only credit card tax payment deals that make economic sense are those that offer double miles for tax payments in programs where the FF miles are valued at or more than two cents each.

 

[chuck1955]

Never use a credit card to pay taxes

Dave is correct with the exception that unless you are getting a triple reward or more it isn't worth it. This subject came up yesterday on a financial show (Ric Edelman). Typically, and I don't think Marriott Rewards is any different, you get about a penny per dollar spent back on any rewards program. The IRS requires you to use a specific service if you want to use a credit card, and that service will charge you a 2.92% "convenience fee" on top of the taxes that you pay, or almost 3 cents a dollar. Much, much cheaper just to buy the points if you need them.

 

[Dave M]

Well, not quite.

First, I wouldn't use a site that charges 2.92%. Official Payments charges 2.49% and has been in the tax payment business for at least five or six years.

Second, the generally recognized value of frequent flyer miles on most U.S. airlines is about two cents each (see Flyer Talk discussions on this issue, for example). Thus, earning two miles per dollar spent equals a value of about four cents per dollar, more than offsetting the convenience fee cost. Accordingly, it generally takes only double (not triple, as you suggest) miles for such payment to make some sense economically.

That doubling wouldn't work for Marriott, since the value of a Marriott Rewards point - for most uses - is less than that of a typical frequent flyer mile.

There are a number of affinity credit cards that offer double miles for tax payments. Delta, United and Starwood affinity cards are the ones that I know that are currently offering double miles for tax payments.

One other consideration: You have to pay the convenience fee now. You might not use the FF miles for several years. Is it worth it to you to pay that fee now to obtain miles you might not use for a long time - or ever?

 

[Hoc]

Given that the IRS considers airline miles to be income, I'm trying to figure a way to pay this year's taxes in airline miles.

 

[Dave M]

Huh?

The IRS doesn't tax the receipt of FF miles as income, except in very limited situations. In fact, the IRS issued guidance in its Announcement 2002-18, stating that it will not assert a federal tax liability for frequent flyer miles earned through business travel and used for personal purposes.

Examples of taxability: An employer purchases and awards FF miles to employees as a bonus. Another example is the income derived from selling FF miles, if one decides to do that in spite of FF program rules prohibiting such a sale.

 

[pwrshift]

Sounds like Hoc might be a 'convert' to Marriott Rewards points!

Brian

 

[planada]

You guys missed the "jest" of my question. I never had the intention of using the card to directly to pay the tax bill. I was thinking more on the lines of.............. (example) buying a postal money order, paying for that money order WITH the credit card, then depositing the money order in the bank, and writing a check for the income tax bill. This is just pie in the sky... thinking creative to maximize point earnings.

 

[dougef]

You guys missed the "jest" of my question. I never had the intention of using the card to directly to pay the tax bill. I was thinking more on the lines of.............. (example) buying a postal money order, paying for that money order WITH the credit card, then depositing the money order in the bank, and writing a check for the income tax bill. This is just pie in the sky... thinking creative to maximize point earnings.

You cannot buy a postal money order with a credit card - so that specific plan won't work.

 

[Dave M]

Doug is correct. That won't work. A similar ploy that people used to do was to by U.S. (E, I, etc.) bonds with a credit card to get the miles and then cash in the bonds as soon as the penalty period was up. Doesn't work any more.

The credit card companies have figured all this out and have generally put a stop to what you suggest.

 

[Gadabout]

Here is BankRate article about this very subject:

http://www.bankrate.com/dls/itax/news/20060308a1.asp

 

[planada]

Thanks everyone..........That is exactly why I asked here, I knew I would get sound advice!