Pay tax with reward points? Bad idea.

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Bill Radke: Last year more than 2 million Americans paid their income taxes with their credit cards. This year, American Express customers have a new option: they can use their rewards points. Marketplace's Bob Moon says that might not be such a wise move


Bob Moon: Use them to pay your taxes and your points won't buy as much as they usually do when you redeem them for, say, a plane ticket. In fact, there's a good chance you'll lack the points you need to cover all your taxes.

Kay Bell is contributing tax editor for Bankrate.com:

Kay Bell: To pay off $5,000 in taxes, an American Express Rewards account holder would essentially have to charge close to a million dollars to be able to get that many points to redeem.

Bill Hardekopf, who heads LowCards.com, says the real point is encouraging you to charge at least part of the tax bill. He says card companies know you'll be on the hook for possible penalties and/or their high interest rates:

Bill Hardekopf: Issuers want to encourage that, and that's why we see a number of commercials that almost invite you to put it on your credit card.

He cautions that "maxing out" your account limit can end up hurting your credit rating:

Hardekopf: If you do charge a significant amount of your income tax to your credit card, you do stand the risk of seeing a decrease in your credit score.

The experts say there are usually better alternatives to cover your tax payment -- borrowing from a family member, a lower-interest personal loan from a bank or requesting a cheaper installment plan from the IRS itself.

I'm Bob Moon for Marketplace.

About the author

Bob Moon is Marketplace’s senior business correspondent, based in Los Angeles.

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