Paying your Taxes with your Credit Card for Membership Rewards – A $ 1,045 IPOD

American Express wants you to use your American Express credit card to pay any remaining tax balance owed to the IRS. Why does AMEX say it is beneficial? Use your card and you get membership rewards. You have to pay those taxes anyway. You might as well get a side benefit in the way of membership rewards.

For every dollar you charge in taxes, you will receive 1 membership reward point. With membership rewards points, you can travel, eat out, go to shows, buy that gadget you always wanted, etc…..

That is a pretty tempting offer. I don’t know anyone who doesn’t like membership rewards. I use them all the time as a means of buying airline tickets. It makes a lot of sense.

Oops, I forgot to tell you about the little catch. There is this small 2.49% convenience charge (a convenient way for them to make excessive money) that goes along with the credit card transaction. For example, for every $10,000 you place on the AMEX card, you will pay $249.

So, let’s say you wanted to buy a brand new classic 80 GB IPOD. In the AMEX membership rewards program, you would need 42,000 points. So, in order to get that IPOD, I just pay my $ 42,000 tax bill using my AMEX card. By doing so, that would give me the 42,000 points that I need. This way I can pay my taxes and get my IPOD at the same time.

The convenience fee is 2.49% or $ 1,045.80. Basically, you paid $1,045.80 for an IPOD that you can get at Circuit City on sale for $237.49. It must be great to be in the credit card business. Doesn’t it bother you that a credit card company would market an idea as a benefit when in reality it is a huge waste of money?

Further, I can understand that some people might have to pay their taxes on a credit card because they don’t have the money at the time. In a tight situation, you can justify the fee. However, AMEX is suggesting that you use a card that you are forced to pay off at the end of the month just for the convenience of paying your taxes online and a bunch of membership reward points!

If you need to put taxes on a credit card, then that is one thing. If you want the convenience of using a credit card, you can use your debit card to pay your taxes. You go to www.officialpayment.com and pay $2.95.

Irresponsible marketing at its best – In the past, AMEX was above that type of marketing. I guess things change.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.