How “Free” are your miles?
Citibank has recently sent out a new tax form for American Airline Frequent Flyer members who started accounts and were given miles as incentive. The 1099 form was sent out and immediatly raised concerns for travelers. Ben Mutzabaugh has an article about the issue here.
The miles were given as a “reward” for setting up an account and considered “money” for nothing, putting it into the catagory of taxable income. Citibank has rated the miles with a value of 2.5 cents a mile which equals about $625 for the 25,000 miles it offered when opening an account.
IRS confusion over Citibank AA Frequent Flyer Miles
The IRS can’t seem to figure out the rules on this one either. The confusion compounds when considering that Citibank considers the miles worth 2.5 cents but likely purchased them for much less. Also, the incentive miles gained though purchases are not considered “income” by Citibank so why is one set of miles taxable and the other is not?
David Lazarus of the LA Times has a great article detailing more of the issue and his contact with the IRS, be sure to read his article here.