Gift card as a tax refund: a good idea?

TurboTax has an offer that lets you accept your tax refund in the form of an Amazon gift card. Should you do it??

By Trent Hamm,?Guest blogger / April 13, 2013

A PC displays a TurboTax online tax computer program in Palo Alto, Calif. TurboTax has an offer that allows you to take your tax refund in the form of a gift card, but Hamm mostly recommends against it.

Paul Sakuma/AP/File

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Recently, I was using TurboTax to do my taxes for the year. For the last several years, I?ve been paying in a bit each year rather than receiving a return because I?m self-employed, which means I have to handle my own personal taxes and I usually make my quarterly tax payments on the lower end of what?s reasonable.

Skip to next paragraph Trent Hamm

The Simple Dollar is a blog for those of us who need both cents and sense: people fighting debt and bad spending habits while building a financially secure future and still affording a latte or two. Our busy lives are crazy enough without having to compare five hundred mutual funds ? we just want simple ways to manage our finances and save a little money.

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Anyway, one of the things I usually do with TurboTax is that once my taxes are actually finished, I?ll play around with scenarios a bit. What would things look like if I made $10,000 less this year? Would I get a refund? What if we gave more to charity? How would that have affected things? It?s essentially a big personal finance calculator that?s already set up with all of our data, so it?s really useful for looking at things like that.

As I was doing this, I discovered something interesting. TurboTax has an offer embedded in it that will give you an Amazon.com gift card in lieu of your tax return. If you accept that, they?ll add an additional 5% to the balance of that card.

This isn?t the first time I?ve seen this type of ?gift card as payment? offer. Coinstar kiosks usually offer this type of arrangement, where you?ll get more ?value? in the form of a gift card than if you simply receive cash. A few banks, such as SmartyPig, also have options where you can receive the balance of your account in the form of a gift card with an additional ?bonus? added to the value of that card.

It?s an interesting offer, both for the institution making the offer and for the customer.

For the institution, they?re able to acquire gift cards from Amazon at a slight discount of their face value. Then, they pass along some of that value to the customer (keeping some of that difference

For the customer, it offers an additional option when receiving your payment, and choice is usually a good thing. The question really boils down to whether or not receiving a gift card as payment is really worth it for the customer.

The only time that you should consider a gift card as payment is if there?s significant additional value placed on the gift card and you?re actually going to use the card in the near future and you?re using the card for something reasonable.

Let?s break down these three elements.

First, is the gift card giving you additional value? If your choice is between cash and a gift card with the same face value, take the cash every single time. That?s obvious. The only time a gift card should be under consideration is if the face value of the gift card is higher than the cash option.

Most of the time, your gift card option will have a higher face value than the cash option. Most companies realize that most customers won?t go for the gift card without some incentive, so this aspect is almost a given.

Second, are you actually going to use the gift card in the near future? It?s very easy to put a gift card aside and forget about using it until you find it two years later (at which point, it might be expired). A forgotten gift card can easily be lost or thrown away on accident.

The best gift card is one you?re going to use quite quickly while it?s still fresh in your mind. Will you actually use that card in the near future? Or are you at risk of misplacing that card?

Finally, are you going to use the card for something reasonable? An Amazon gift card isn?t just an excuse to go buy random things. If you?re going to just blow the money on trivial things, it really doesn?t matter whether you choose the gift card or not.

If the presence of the gift card is tempting you to spend it on something purely useless, while the cash might be put to better use in your life, get the cash. If you can actually use the gift card for something worthwhile, such as buying household supplies or picking up a gift for someone, the card is probably a good choice.

If you?re not saying ?yes? to all three of these criteria, you should be getting your payment in the form of cash, not in the form of a gift card.

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