January 13, 2010
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News: AmEx Pays Consumers' Tax Bill
A select number of American Express (AmEx) credit card customers will soon have the option of giving their reward points to the United States (U.S.) Internal Revenue Service (IRS). AmEx cardholders can earn up to one point for each dollar and sometimes two dollars of credit card sales transactions and will now have the option of applying these points toward their federal tax bill. The idea is novel and one of the best to come along in years. The option allows credit cardholders an opportunity to use points to fulfill existing responsibilities without having to increase spending on non-essential merchandise and services.
American Express cardholders can redeem their points and apply them toward their state and federal taxes on two separate websites; Pay1040.com and OfficialPayments.com. Cardholders are not able to file tax returns on the sites but rat her are only able to pay current or past due taxes of previously completed. These sites typically do not charge consumers a fee for paying by check or direct deposit; however, both sites do charge a small fee to process a card payment which is calculated as a percentage of the amount of the payment. The fee compensates the site for processing the payment because law prohibits them from absorbing the cost of debit and credit card payment. These companies charge 2.35 percent of the payment amount for credit card payments and a flat $3.95 for debit card processing.
Although it sounds like a really good idea, the new program has its drawbacks. For a taxpayer to apply just one dollar towards his local, state, or federal tax bill, he must use up 200 of his credit card reward points. That would mean that he would have to spend a minimum of $200 to reap just one dollar for tax reduction. The exchange rate doesn't seem very rewarding, but, what have you got to lose?