AmEx's Unrewarding Rewards?

American Express cardholders can use rewards points to pay off federal or state taxes this year.

The credit card giant said it’s providing this tax option—an industry first—because it wants to give customers a practical use for rewards points in these hard economic times. Cardholders can use their points when they use one of two websites to file their taxes: Pay1040.com and OfficialPayments.com.

Wait for it.

Here it is. The catch: It takes a whopping 200 points to pay off just $1 in taxes. Card members earn about one point for every dollar spent. So they would have to charge $1 million to pay off just $5,000 in taxes.

Rewards points can be used for travel, dining, and shopping. But oddly, some of the items on the AmEx rewards website come cheaper than a dollar’s worth of taxes: For example, there’s a $25 Barnes & Noble gift card for 2,500 points (100 points per dollar of value), and a Canon PowerShot SD-series 10-megapixel camera—regular price $299—goes for 34,600 points (116 points per buck).

It’s unclear how helpful this new points-to-taxes option is, though AmEx claims it will help people who are really struggling.

But here’s one thing to consider: Card issuers have already begun to make rewards programs less rewarding. To offset the anticipated loss in revenues once the majority of the CARD Act provisions go into effect next month, card issuers are reducing the value of rewards points, raising annual fees on rewards programs, and increasing costs to collect rewards.

Not only are rewards cards (including cash-back cards) imposing new restrictions, but they also generally carry higher interest rates. According to the latest rates on Bankrate.com, all variable-rate credit cards averaged an APR of 11.77 percent, while cash-back cards averaged a much higher 15.0 percent.

Cristine Gonzalez — A freelance writer who covers family and personal finance, Cristine has worked as a reporter for The Oregonian and The Associated Press in Portland, Ore., and as a copy editor for People magazine in New York City.