Frequent flyer miles for taxes? Yes, but…

This time of year, the following question inevitably arises: Can I earn airline miles or hotel points for my tax payments? The answer is yes, but with an important caveat.

As might be expected, earning miles for tax payments requires the use of a credit card linked to an airline or hotel program. But the IRS is prohibited from directly accepting payment charges because the merchant fee assessed by credit card companies would dilute tax revenues. So two companies have stepped up to act as intermediaries, accepting credit card payments from taxpayers and making a cash payment to the IRS on consumers’ behalf.

So far, so good. The taxpayer earns miles for paying with a credit card, and the government receives the full amount due. The problem is that the two companies that facilitate credit card tax payments—Official Payments and Pay1040.com—assess a fee for their services. There’s nothing underhanded or unethical about that—they’re in business to make a profit, after all. But the fee, 2.49 percent of the amount charged, undermines the entire value proposition.

The “convenience fee” is tantamount to paying 2.49 cents for every mile earned. That’s twice the value most consumers can expect to derive from their miles when redeeming them for free flights. So in the great majority of cases, paying taxes with a credit card amounts to overpaying for frequent flyer miles.

In past years, there have been various tax-related promotional opportunities—bonus miles for using tax preparation services or charging tax payments to certain credit cards—but with just a month remaining before this year’s April 15th filing deadline, there are none to be seen.

The conspicuous absence of such offers might be a sign that all concerned parties now recognize that tax payments and airline miles aren’t a winning combination.