A New Legal Interpretation May Require You To Pay Taxes On Frequent Flier Miles


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Rewards program customers may soon find themselves paying for those free frequent flier miles and other perks.Citibank has asked customers to report the miles earned from its ThankYou rewards program on their taxes, reports the LA Times‘ David Lazarus. 

A Citibank spokeswoman, Catherine Pulley, told the Times that the 1099-MISC instruction form’s use of “prizes and awards” indicates miles can fall under this category. 

The 1099-MISC form is required when total compensation during the year exceeds $600.

For its part, the Internal Revenue Service has remained ambigious about the issue. It explicitly stated in 2002 that frequent flier miles would not be taxed.

Citibank customers sounded off on FlyerTalk about the 1099-MISC forms. One user said she reported a $750 income for the 20,000 miles she received after opening a checking account with Citibank last year.

Another user, Dr Jabadski, had a theory for Citi’s move: “My tax preparer told me that reporting a different income to the IRS than listed on a 1099 is a big red flag to the IRS and it wasn’t worth arguing over. The IRS doesn’t know if I got 40,000 miles or $1000.00. Citibank is increasing their tax deduction and Citibank couldn’t care less if I get audited!”

The IRS had not returned a request for additional comments at press time.

Now see 9 ways to catch a tax preparation scam >