Are Frequent Flyer Miles Taxable?

Congress at Work: Insider Trading and Payroll Taxes

In case you haven’t heard, a number of Citi customers have received 1099-Misc forms for bonus miles that they received during 2011. But are frequent flyer miles actually taxable?

According to a report in the Wall Street Journal, the answer is… Maybe.

It all depends on how/why you received them. Were they awarded as a rebate? Or a promotion? Or maybe as a prize? To add to the confusion, the IRS hasn’t issued a definitive ruling on the matter.

Yes, they’ve said that you don’t have to pay taxes on miles attributable to business or personal travel. But other types of miles? That’s less clear.

Here’s the scoop according experts at the American Institute of CPAs as well as Randy Peterson, published of Inside Flyer magazine…

Miles awarded for flying. As noted above, these are non-taxable.

Miles awarded for credit card use. These likewise seem to be non-taxable.

Note: Citi agrees with this, saying that rewards and miles provided in connection with a purchase are non-taxable.

Miles awarded for business travel. Again, non-taxable.

Miles awarded as part of a promotion. Think signup bonuses… These miles are potentially taxable though, unlike Citi, AmEx doesn’t report them, likening them to a rebate since there is usually a spending requirement and/or an annual fee.

Miles awarded as prizes. When miles are given out as prizes, sweepstakes-style, they are generally taxable.

So there you have it… Your miles may or may not be taxable. It all depends.

Another interesting (and annoying) point to arise out of this is that Citi has apparently decided to value these miles a 2.5 cents each, meaning that a 30k mile bonus equates to $750 in 1099-Misc earnings.

Seriously? 2.5 cents each? How often are you able to redeem your miles for 2.5 cents each? A much more reasonable estimate would be 1-2 cents per mile, and that’s often only possible if you tweak your travel plans to qualify for a reward ticket.


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5 Responses to “Are Frequent Flyer Miles Taxable?”

  1. Anonymous

    Oh, wow, interesting. I hadn’t thought of that – I don’t get flyer miles but I get a rebate from my credit card and I wonder if that’s taxable income. I should remember that to ask my tax person about!

  2. Anonymous

    If you don’t need to spend like bank account sign up bonuses, it’s pretty easy to see why you would be taxed. I can also see why spend requirement on credit card would not be taxed (rebate).

    The hard stuff will be when you spend less than the sign up bonus amount or the requirement is to make three debits which is some form of spend.

  3. Anonymous

    I do not see how these miles can be taxed at 2.5 cents per mile. That would be absolutely ridiculous considering the fact that the redemption rates are nowhere near that. I received 150k miles last year from Citi for signing up for two AAdvantage cards, so you can see why I am so outraged! 🙂

  4. Anonymous

    If Amex starts doing that we will not use credit cards at all any more. Presently we only use them for the rewards. My husband will just use his work card for work travel and we will just go cash only. We already pay a yearly fee to get the miles… to pay tax on them would just ice the cake. If my in-laws didn’t live abroad we wouldn’t even do this much.

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