Business History Books » Business Plans » Clinton's Tax on FF Awards
Clinton's Tax on FF Awards
Question:
>> I have heard that starting next year, Pres. Clinton will require > that taxes be paid on FF awards. Can anyone point me to information > on how he plans to do this.
I can’t comment on the USA, but here in Australia, the Tax Office has announced that you will be taxed on the value of *private* flights "purchased" with frequent flyer points which you obtained through travel paid for by your employer. The justification is that the employer has paid you in frequent flyer points instead of dollars, but it’s still income and should be taxed accordingly. So, (completely hypothetical example), you have 10,000 FF points accrued from business travel (for which your employer paid) and 5,000 FF points arising from personal travel (for which you paid). If you spend 9,000 FF points on a personal trip, then they regard that 2/3rds (pro-rata on the accrued points) of the trip was a "benefit from your employer" and you have to include 2/3rd of the market value of the flight as income in your tax return. There are no tax implications if the FF points arising from business travel are used for business travel. There are no tax implications if you never spend the FF points. The "cost" of the flight is the cheapest available flight (and the airlines have indicated that they will help you determine what discount fares could have applied). Currently the airlines are working on modifications to the scheme that might eliminate the tax implications. Currently, you can spend FF points on trips for your immediate family, and thus it is a transferable benefit, which apparently has different tax implications to a non-transferable benefit. So the airlines are proposing to offer a FF scheme in which FF points can only be spent on yourself, so it’s not a transferable benefit and hence not taxable. But I’m not sure if the Tax Office has given its blessing to this yet. Which just goes to prove that there is nothing certain except death and taxes 
Kerry
Response:
>I have heard that starting next year, Pres. Clinton will require >that taxes be paid on FF awards.
Frequent flyer awards earned from business travel and used for personal trips are taxable NOW. No one ever reports them as income, though (well, maybe there is someone somewhere who does), and our friends in Washington make no attempt to enforce their taxation (they have also made no attempt to define the value of the awards received). Perhaps there are some plans in the works to step up enforcement. >on how he plans to do this. I am saving my miles for 4 tickets to >Hawaii and would hate to wait until next year to go and find 28% of >the money saved be owed to Uncle Sam. What really concerns me >is at what price would they tax you. While I have heard the FF awards >cost around $30 to the airlines, what is the value to me. I would >not pay more than the deeply discounted fare with all the cancellation >penalties and I can see them taxing at the current price which after >taxes could be greater than what I would pay with the discounts.
Not only that, but if your frequent flyer account has miles earned from business trips, personal trips, hotel stays, rental cars, promotional bonuses, long distance telephone calls, and whatever other ways one can earn miles, how do you determine which miles (i.e., business vs. personal) were used for which purposes? The IRS would need a whole department to deal with all the complexities. I think the amount of effort required would hardly be worth the extra revenue collected. >Also, if I request my mileage award (from Delta) be issued this >year and don’t use the ticket until next May (but go ahead and >ticket) then would this get around the tax due next year. I don’t >see how he could tax on miles I earned over the last 5 years but >no one said the tax code is fair. >What else is next, taxing free or discounted room stays from hotel >frequent guests. It seems if I am going to get taxed on them then >it has value so I ought to be able to sell them. If I can’t sell
>my tickets, what is its value? Most of these FF award trips are used
>by me for trips I wouldn’t normally make.
This may be the best defense against any taxation plans in the works. >Thanks for any input or pointers. >Steve
If awards earned from business trips and used for personal purposes are taxable, then the flip side is that awards earned from personal trips used for business purposes should be deductible. Has anyone tried this? BK
Response:
I have heard that starting next year, Pres. Clinton will require that taxes be paid on FF awards. Can anyone point me to information on how he plans to do this. I am saving my miles for 4 tickets to Hawaii and would hate to wait until next year to go and find 28% of the money saved be owed to Uncle Sam. What really concerns me is at what price would they tax you. While I have heard the FF awards cost around $30 to the airlines, what is the value to me. I would not pay more than the deeply discounted fare with all the cancellation penalties and I can see them taxing at the current price which after taxes could be greater than what I would pay with the discounts. Also, if I request my mileage award (from Delta) be issued this year and don’t use the ticket until next May (but go ahead and ticket) then would this get around the tax due next year. I don’t see how he could tax on miles I earned over the last 5 years but no one said the tax code is fair. What else is next, taxing free or discounted room stays from hotel frequent guests. It seems if I am going to get taxed on them then it has value so I ought to be able to sell them. If I can’t sell my tickets, what is its value? Most of these FF award trips are used by me for trips I wouldn’t normally make. Thanks for any input or pointers. Steve
Response:
- Hide quoted text — Show quoted text – > I have heard that starting next year, Pres. Clinton will require > that taxes be paid on FF awards. Can anyone point me to information > on how he plans to do this. I am saving my miles for 4 tickets to > Hawaii and would hate to wait until next year to go and find 28% of > the money saved be owed to Uncle Sam. What really concerns me > is at what price would they tax you. While I have heard the FF awards > cost around $30 to the airlines, what is the value to me. I would > not pay more than the deeply discounted fare with all the cancellation > penalties and I can see them taxing at the current price which after > taxes could be greater than what I would pay with the discounts. > Also, if I request my mileage award (from Delta) be issued this > year and don’t use the ticket until next May (but go ahead and > ticket) then would this get around the tax due next year. I don’t > see how he could tax on miles I earned over the last 5 years but > no one said the tax code is fair. > What else is next, taxing free or discounted room stays from hotel > frequent guests. It seems if I am going to get taxed on them then > it has value so I ought to be able to sell them. If I can’t sell > my tickets, what is its value? Most of these FF award trips are used > by me for trips I wouldn’t normally make. > Thanks for any input or pointers. > Steve
I think you have heard a nasty and inaccurate rumor. The IRS has (to my knowledge) refused to propose taxing awards. What you MAY have heard is that there is a $3 tax at many airports that must be paid even with FF awards. E.g., I got a free ticket Seattle-Chicago and there was a $6 charge — that being the $3 airport tax at both Seattle and Chicago. I don’t think you need to worry about any stiffer taxes in the near future.