Citibank's New Frequent Flier Benefits Come With A Major Tax Hassle

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Photo: Flickr / Mr. Thomas

The IRS delivered some bad news to Citibank customers this week, stating frequent fliers awarded to customers for opening a new account are taxable. “When frequent flier miles are provided as a premium for opening a financial account, it can be a taxable situation subject to reporting under federal law,” IRS spokesperson Michelle Eldridge told the LA Times

David Lazarus, the Times’ reporter who broke the story, says the tax man’s response will raise even more questions. 

Mainly, how will we value the miles? 

Between Citi reportedly purchasing the miles for close to a cent apiece from American Airlines and Citi saying they’re worth 2.5 cents, tax preparers will have a field day. 

A tax attorney Lazarus spoke to said the value of the miles are “whatever Citi says it is,” but if that’s the case, we have to wonder whether all consumer incentives are taxable, too. 

Don’t freak out just yet: The IRS might not be too keen on all that paperwork, said Tom Griffith, a USC law professor Lazarus interviewed. 

For now, Citi customers will have to fill out the 1099-MISC form required when total yearly compensation exceeds $600 and hope that reporting a different income doesn’t send a red flag to the IRS to start an audit

Now see 9 ways to catch a tax preparation scam > 

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