Are Taxable Frequent Flyer Miles in Your Future? - FrequentFlier.com
I do not believe so. to date, the only miles the IRS has gone after have been points given for simply signing up for a credit card. One could argue that you did nothing to earn those points, but were given them as a cost of doing business. I do not anticipate a change in philosophy from the government, and if they do, I would expect companies to find a way around those rules. No worries.....
Hmm, assuming the federal and state government will not tax a potential revenue stream? Fascinating. They will go after prizes (I got a 1099 with the check after winning a 500 dollar prize in a radio contest)
of course you did. it is totally different. same as winnings in vegas over a certain amount are taxed. Let's see, these programs have been on the books for 30+ years, has anyone yet been taxed??? I don't believe the sky is falling..... but keep your head up!
Maybe we should be sure no IRS folks are on this forum?
just because you are paranoid, doesn't mean someone isn't out to get you........
Right you are
Don't worry. The IRS has been thinking about this issue for many years already--no one here is "spilling the beans" to the IRS.
I am with Shoeman on this..I do not think the IRS will pursue this as it would be too costly to implement and very unpopular!!!
Hmm, you think the IRS would miss a chance to get more revenue?
Not at all. I think they would tax tax if they could. BUT, I suppose you have heard of Lobbyists? I would suggest to you that those that work in the Hospitality field would be working overtime to squelch anything of the sort you rate suggesting.
Actually if the thread I started is true, the industry would not feel that bad if the bennies were taxed, since those bennies cost them money too
Don't we already pay taxes on taxes? How about the FICA tax which funds SS which in turn is taxed?
We do, and we also pay an inheritance tax on money earned and taxed when we die.
We definitely pay tax on tax. We are taxed twice all the time. In California, you pay sales tax on the purchase of a used car that someone previously paid sales tax on. (Aside from the fact that it often seems like the IRS can do whatever they want,) I don't see how the IRS can tax miles or points. I spent previously taxed dollars to earn those points! The points that we earn are also factored into the price point. Nothing is free.
If they start taxing points or miles I will become an ugly. (If they start taxing my payroll deduction for health insurance, I will become an ugly!)
Better stop there. Probably already went too far. Sorry. Not soliciting further comment.
Hope the IRS is not monitoring this site! Actually our only salvation is that medicine and food are for the moment, not taxed! I wonder how See's Candy, a venerable purveyor of chocolate goodies, got themselves exempted from paying or charging CA sales tax.
I guess the same way that potato chips and ice cream and candy bars and hot dogs (and pink slime!) are not taxed. But soda is, I believe...along with tobacco and alcohol and gasoline and used cars and what about all of those crazy fees that are added to telecommunications and utility bills...
And I will be an "uglier" if they ever decide to tax prescriptions (who thinks this stuff up anyway?) No wonder people look the other way when paying housekeepers and gardners. Not me of course(!)
American taxation is strange and absurd.
Actually most snack foods are taxed in CA, including sodas. See's is alone in being tax free.
Ah, you've thrown down the gauntlet, SS. I will be doing recon soon to verify!
Stop by any See's store (in CA and not at airports--has to be a company owned place--and see what is up. I hesitate to speak with the FTB here since they may have missed the ability to hit us in the candy pockets! I note from a less than thorough search of the Internet that the state of Colorado, as of 2010, decided to lift the exemption on candy and all out of state manufacturers. See's is made here in the golden state so it qualifies. Take that Warren Buffett (since Berkshire/Hathaway is their parent).
They would, and they have--for example, if the administrative hassle of collecting/enforcing the taxes is so high that it outweighs the revenue potentially earned.
Check out this IRS notice from 2002 announcing that they won't go after people, in most cases, for frequent flier miles earned by flying on tickets purchased by their employers (note: very narrow situation; does not apply as a blanket rule on all miles).
And the IRS is undergoing a shrinkage in personnel and ability to chase people
This is an area of significant ambiguity, in which the IRS has not said very much (and could announce/change its policies at any time). But currently, it seems that the taxability of miles depends on how the miles are earned.
(1) Miles earned from credit card spending are generally considered rebates on the purchases, and not taxable (although the IRS could decide to start taxing these--but there hasn't been any sign that they are planning to do so in the near future).
(2) Miles earned for banking activity (checking, savings, etc.) are generally considered a form of interest, and taxable as such (based on fair market value of the miles--which is an area of serious ambiguity). For example, Citibank is known for issuing 1099s to people based on banking activity.
(3) The IRS has officially announced that, because of administrative issues, it will generally not be assessing income taxes on miles earned by employees for travel paid for by employers. (But the IRS can also officially change this policy going forward by publishing a new announcement.) However, if an employer is using miles for tax avoidance purposes (e.g. paying an employee entirely in miles, and no salary) the IRS reserves the right to assess for taxes.
(4) Miles won as prizes are considered taxable just like a cash prize would be (but again the FMV of the miles is ambiguous, which creates some conflicts when the prize awarder and the prize recipient disagree on the value of the miles).
(5) Miles earned for airline travel, on tickets you pay for yourself, are generally considered rebates and not taxable.
Points are generally similar to miles: it depends on how you earned them.
I whole-heartily agree with your assessment of the points/miles issue. To think that a post on this site would somehow ALERT the IRS is ridiculous. Also, as you aptly point out, there are many different ways points/miles are earned and only a few of those will likely be considered as taxable. Thanks for keeping it real.
Excellent explanation and thanks
I am really surprised that is gone this long with "No tax" on FF programs. I think it is a matter of time and it will be implemented. I have had to pay tax on some rooms that I used points for.
Wouldn't the companies want to do away with this "Liability"?
The IRS works in strange and mysterious ways, and having been audited I can tell you they are a worthy adversary.
Yikes!! I hear that audits are really not fun. >.<
not even with the best lawyers,
Also keep in mind that many of us pay for our MR points. MVC owners can convert their timeshare weeks to MR points. I paid to purchase the timeshare, and pay annual maintenance fees for them. If I convert my Royal Palms week for 110,000 MR points, it currently costs me $1100 in MF for those points. Over 1/2 of my MR points have come from timeshare purchase bonuses (therefor a rebate) and point conversion.
Note: Food in Kansas is also taxed at almost 9% state and local rate. Although Kansas is supposed to be a conservative state, it taxes everything.
So far, so good. Hope it never comes to pass as taxes are paid on the travel expenditures already. Keeping fingers crossed!
I see that some states are considering having black boxes installed in personal cars to allow per mile taxation, so the creeping tax man is still alive and well!
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