Should You Pay A Fee To Use Your Card?

My mother called me today to ask a question. She was trying to maximize her credit card awards by paying her taxes using a credit card.

Some Restrictions May Apply

First off, you can be sure that when accepting payments by credit card, your local, state, and federal governments will charge an additional fee. There appears to be two companies that can accept credit card payments on behalf of the government: Official Payments Corporation, and Link2Gov Corporation (also known as Pay1040.com). Both of these companies charge you a 2.49% “Convenience Fee”.

Is This Worth It?

My first instinct is to say no way. We are lucky if we can get 2 or 3 percent value returned on our awards, so paying that is just a wash. Upon further examination, and at the insistence of my mother, I am willing to accept the fact that there are some situations where this may actually be justified.

In my parent’s situation, they are both heavy Delta travelers. I know from my past experience that the only way to endure frequent travel on Delta, or most other domestic carriers, is to hold elite status in their mileage program. With it, you get domestic upgrades, waived baggage fees, and free standbys. Elites also get bonus miles every time they fly. The only way to qualify for elite status is to gather Medallion Qualifier Miles, or MQMs. These are miles earned through actually flying, and are rarely earned on the ground. The generic term for these “super miles” is simply “base miles”.

One of the only ways to earn base miles on Delta without traveling, is through the Delta SkyMiles American Express cards. The Reserve and Platinum cards both offer base miles as sign up bonuses, as well as additional base miles with their “Miles Boost” feature. The program rewards Platinum card holders with 10,000 base miles at with $25,000 annual spending, and another 10,000 at $50,000 of annual spending. The Reserve card gives you 15,000 base miles at $30,000 of annual spending, and then again at $60,000.

Why It Could Make Sense

If it makes the difference between reaching the Elite level status and not, I can definitely see paying the %2.49 for your tax payments. Furthermore, the “convenience fee” itself is actually a tax deductable expense, so it’s real cost is diminished. I could even speculate on whether or not you would earn miles on the “convience fee” itself, and what their value would be, but then my head would start to hurt!

What Is The Value Equation?

Start of with 2.49 cents per mile, when you pay with your standard Visa or Mastercard. Obviously you would be nuts to put this on your cash back cards, as no one will give you %2.49 back. 2.49 might be worth it for some rewards, especially when there is a mileage bonus involved. For example, American Express Membership Rewards program is currently offering a %30 bonus on mileage transfers to Delta. Therefore, the you are paying something more like 1.7 cents per mile, which is much closer to their actual value. The real value is in attaining elite status with Delta, which is worth quite a bit to frequent travelers.

What About Starwood

You could also charge your taxes to your Starwood Amex. Redeeming 20,000 Starwood Starpoints, you get 25,000 Delta SkyMiles, a %25 bonus. This also brings your price per mile to the 1.8 cent per mile range, although there is no Delta base miles involved. Actually, you might earn Starwood Gold status if you get to 30,000 miles in one year on your Starwood Amex. Starwood Gold is good for unlimited complimentary room upgrades and free 4 PM checkouts.

What About Super Awards

Super award is my new term for awards that are worth far more than the %2-4 value most award tend to be worth. A super award should earn 5-10 cents per mile. If you are are certain to be redeeming your miles for super awards, %2.49 starts to look very reasonable.

My Favorite Super Awards

My two classic examples of super awards are these: Stay 4 nights in a Starwood hotel and get the fifth night free. The hotel redemptions are often worth more than 4 cents per StarPoint, and that number goes up past 5 when you get the fifth night free.

The second is the Singapore Airlines First Class partner award on Delta. They offer a round trip, first class ticket on Singapore Airlines from a US gateway for only 140,000. Yes, that is a lot of SkyMiles, but consider two things. First, Singapore Airlines first class cabin is consistently ranked as either the best in the world or one of the top three. They make first class on most US carriers seem like coach. We are talking amenity kits, turn down service, and personal high definition televisions. Check it out here. Secondly, these seats can easily sell for over $14,000 each. That is over 10 cents per mile in value. On the other hand, if you were to pay $14,000 you would get a seat on any flight, even at the last minute. The award might be hard to redeem if you are not flexible.

So consider you options carefully when it comes to paying a fee to use a credit card. To your surprise, it just may be worth it.