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Bankrate's 2008 Tax Guide
Filing & refund
Get it done right the first time with this advice on free filing, e-filing, documentation and refunds.
 
Get rewards using plastic
Tax payments by plastic rewarding


Nobody enjoys paying taxes, but several credit card issuers hope to lessen the pain by offering reward points or airline miles for cardholders who pay their federal income tax with plastic. Some credit card issuers like American Express and Discover offer cash back when you use their plastic to pay off Uncle Sam.

American Express offers one Membership Rewards point for nearly every dollar you charge for your taxes. Charge your taxes on a Chase United Mileage Plus Visa and you'll rack up more points and miles. But not everyone is happy with the "convenience" of paying taxes with plastic.

Beware the convenience fee
Bear in mind that if you charge your tax bill on these cards, you will be charged a convenience fee -- usually 2.49 percent of the tax amount paid -- by either Official Payments Corp. or Link2Gov, the two third-party processors licensed by the federal government to accept credit card payments. Watch: "Paying with plastic"

There are ways to save on the convenience fee, though. Link2Gov has a flat rate of $2.95 when you charge your taxes on a bank-issued debit card with the MasterCard or Visa logo. This even beats writing a check and mailing it, when you consider the U.S. Postal Service price of $4.50 for Certified Mail, with a Return Receipt. Debit cards eligible for use at incometaxpayment.com must participate in at least one of the following payment networks: NYCE, Star or PULSE. You can tell if your debit card is eligible by looking for the network logo on the back of a check, debit or ATM card.

American Express won't rebate your convenience fee, but it will allow you to redeem Membership Reward points to pay for it. Figure on cashing in 200 reward points for every dollar you're charged for the convenience of paying your tax bill with plastic, according to spokeswoman Monica Beaupre.

Cards overtake EFTs
Credit or debit card payments to the IRS have grown steadily since Uncle Sam first began accepting plastic in 1999 and now outnumber electronic funds transfers, or EFTs. That number is expected to grow considerably in 2008 when businesses will be allowed to pay by card as well. The advent of electronic filing and the proliferation of tax software programs, many of which offer their own rebate incentives for paying online, are driving the trend. There's also the simple convenience of telling the taxman to charge it.

IRS payments with credit/debit cards versus electronic funds transfers
Payment
Number of 2006 transactions
Number of 2007 transactions
One-year change
Cards
2 million
3.4 million 70%
EFT
1.26 million
1.5 million 20%
Source: Internal Revenue Service
-- Updated: Feb. 4, 2008
 
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