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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.