Actually, neither of the above. When you pay your taxes with a credit card, you're actually paying a third party such as Official Payments Corporation. The third party then pays the IRS. The third party also adds a "convenience fee" for its services, which is OK with the credit card folks because they don't offer the same service for less if you pay a different way.

Say your tax bill is $100. You pay the third party $102.49. It pays the IRS $100. It then submits a charge of $102.49 to the credit card company and gets (since its volume entitles it to a darn good rate) about $101. Its profit margin is the difference between $100 and what it gets. The card issuer is out $101 it gives OPC, $1-something to the airline for your 102 FF miles, plus their cost of capital until you pay up, or pretty close to the $102.49 you eventually pay. (Of course they hope you won't pay on time, which is where they really make their money, but we're smart enough to know that.) Everyone's working on thin margins, but with high volumes it all adds up.

If there's no fee the business model falls apart. That's why we couldn't pay taxes with credit cards until someone came up with this third-party gimmick to get around rules about merchants not being allowed to add a fee for taking plastic. The underlying problem is that the IRS, unlike many merchants, won't absorb CC fees: if you owe it $100, it doesn't want to end up with $98. Local tax authorities can if they want to, which is why I think you can pay some local taxes by credit card. (Don't ask me which, I can't pay mine that way, but I recall reading posts to that effect here on FT.)