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American Express Membership Rewards Points Can Be Used to Pay Taxes

This article was written by in Credit, Taxes. 7 comments.


American Express offers a point-based rewards system called “Membership Rewards” to those qualify for and use their credit or charge cards. Points generally benefit only cardholders who pay their bill in full every month, so any accumulation of benefits does not first need to offset interest or late fee charges. With American Express, these points typically accrue at a rate of about one point for every dollar spent using a credit or charge card that participates in the program, but depending on the card and the merchandise, they sometimes accrue at a rate as low as one point for every two dollars.

The company is now offering a new redemption choice for those who have accumulated points through significant spending. You can use these points to pay all or part of your tax bill. The idea is grounded in some sense. Rather than using rewards to buy something else, contributing to unnecessary additional spending, American Express is suggesting using the points for something perhaps more responsible.

In order to use Membership Rewards points for paying taxes, you must use the services at either Pay1040.com or OfficialPayments.com. These websites do not offer tax filing services; they exist just to help taxpayers pay their due or overdue taxes after they have already filed the appropriate forms. While paying a tax bill by check or direct debit (ACH) is free, these services charge a fee determined as a percentage of your payment in return for the convenience of paying with a credit card or a debit card.

Since payment processors are not allowed by law to absorb the cost of accepting credit and debit cards, the convenience fee allows these companies to pass merchant card expenses to the taxpayer. Both companies charge 2.35% of the payment and the amount is subject to a minimum. Debit cards are processed with a flat $3.95 fee.

Through the above websites, paying $1 to the IRS or to your state or local governments costs 200 Membership Rewards points. This isn’t exactly a favorable exchange rate considering you’ll need to spend a minimum of about $400,000 on your card in order to use those points to pay off a $2,000 tax bill including the processing fee. Financially, you might be better off just converting your points to cash.

This reminds me of Taco Bell’s new Drive-Thru Diet. It’s good that American Express is offering some new options for using Membership Rewards points, but you should look at the cost and whether this is the most efficient use of your points. There are better options out there. After all negotiation and payment plan options with the IRS have been explored and exhausted, those who need to pay a tax bill via a credit card, like those who need to eat at Taco Bell, — this might be a worthwhile use of points.

What do you think?

Published or updated January 12, 2010. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 7 comments… read them below or add one }

avatar Steve

Amex points are not worth what they used to be. The primary use of them used to be transferring them to airlines, where you could get 2 to 3 cents per point worth of airfare (especially for first class tickets, assuming you value such tickets at list price.) Nowadays airlines have sold zillions of miles to credit card issuing banks, pudding manufacturers, and whatnot; and furthermore said airlines are not close to, but in fact beyond the razor’s edge of profitability. As such they have been systematically devaluing the miles, raising the price (in miles) of awards while simultaneously reducing the availability of those awards. Meanwhile Membership Rewards offers various physical objects (from headphones to a set of pots and pans to GPS devices) at anywhere from 1.8 to 3 or more points per cent of street value.

Amex gave me a bunch of points almost a year ago as a sign-on bonus, and the only thing i’ve found so far that gets anywhere near 1 cent per mile is Home Depot gift cards. Assuming that you spend that much at home depot or are willing to sell them on ebay or craigslist.

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avatar Nick

I’ve found that Visa generally gives more rewards regarding cards that issue points. However, these are usually for airfares and not much else. The ones that give cash back do not offer much at all, but it would be nice to have points directly applied to a certain bill instead of redeeming them for a gift card later.

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avatar Craig

I’m new to the Amex rewards system so don’t know how it fairs against other cards. Seems interesting to pay towards taxes, guess I can see it being useful. I figure I’m just going to let mine grow until I need to put money towards an expensive flight.

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avatar Paul

To Steve – I’ve also found that the best use of my Amex points is the gift cards which give you the full value of your points.

Besides Home Depot, I’ve also used my points for Dell.com e-certs, Zappos.com, Banana Republic, etc. Seems like they added some new ones like Old Navy and Victoria’s Secret.

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avatar Warren Dew

My exchange rate is also $0.007 per point.

American express used to pretty regularly give an average of $0.01 per point on travel and merchandise rewards in their catalogs, though cash equivalents were never quite that good. They used to have occasional special deals, especially on travel, that were much better. Recently their membership rewards points seem far less useful.

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avatar Frank J Ferrara

I called and was told that my $100.00 credit to Morton’s Steaklhouse would be mailed to me. IT WAS NOT.!!!. I called again and was told to go to http://www.ecerts.@american express.com AND there is absolutely nothing I see that will give my MORTON’S CREDIT.
i SPENT TOO MUCH TIME PLAYING YOUR GAME, NOW EMAIL THE THING TO ME AT
hamp77@optonline.net
Frank J Ferrara

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avatar MARY

Can I pay my Amex monthly bill with my Rewards Points ???? thanks, Mary

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