I’ll say that again. Citibank sent out 1099 forms for airline miles. The miles were listed as “miscellaneous taxable income.” So now, people who have never thought to report miles as income are freaking out–do they owe back taxes? How much do they owe, exactly? How much is a mile worth?
The AP notes that – generally — frequent-flier miles given as credit card rewards have not been considered taxable “because they’re treated as rebates on spending, according to the Tax Institute at H&R Block.”
However, the catch in this situation is that miles doled out as a “reward” for opening a new checking or savings account may be viewed differently. The AP says that’s because “you don’t spend any money to receive it,” meaning it’s not really a rebate on spending.
“So the gift is instead treated similarly to interest income, meaning that it’s taxable,” AP writes.
“When a customer receives a gift for opening a bank account — whether cash, a toaster or airline miles — the value of that gift is generally treated as income and subject to reporting,” Citibank says in a statement to AP.
So it’s not the miles you rack up for spending that are taxable–it’s the miles you get as a bonus. But what happens if you never redeem them? What happens if they expire? Do you get some sort of tax credit? The IRS said in 2002 that miles weren’t taxable (I think that’s what they said–I don’t speak tax code very fluently), but now they say that when the miles are accrued as a bonus, people can be taxed on it. So if even the experts are confused about this, how are normal people supposed to figure it all out?
Readers, what do you think? Did you receive one of these tax forms? Citibank is valuing the miles at about 2.5 cents a mile–is that fair?