Individuals should watch out for consumer incentives received throughout the year that appear to be “free” – often the IRS and State taxing authorities are looking for new ways to assess income taxes for events which taxpayers may not think about when filing income tax returns. The
IRS, at least unofficially, appears to agree with certain Form
1099-MISC reporting agents that not all frequent flyer miles are
excludable from a recipient’s income. This position can be inferred by
the IRS’s response to CCH’s inquiry relating to the receipt of certain
2011 Forms 1099-MISC that report as income the value of reward miles
received during 2011 for opening checking or savings accounts. Although “frequent flyer miles”
as originally awarded only on airline travel were easy to categorize as
a nontaxable rebate of the original ticket price, use of “reward miles” and “reward points” to incentivize certain other consumer activity apparently does not automatically receive the same treatment.
At least some Citibank customers reportedly have expressed
surprise over receiving 2011 Forms 1099-MISC that list as income the
value of miles received as an incentive to open financial accounts.
Receiving the Form 1099-MISC requires them to declare the value of those
miles as income on their 2011 returns, seek a correction of the Form
1099-MISC from the issuer or independently explain the issue to the IRS.
“When frequent flyer miles are provided as a premium
for opening a financial account, it can be a taxable situation subject
to reporting under current law,” an IRS spokesperson told CCH in
investigating the latest Form 1099-MISC issue. However, the IRS
spokesperson further noted that, “if taxpayers have
questions about the information they receive on a Form 1099, they should
follow up with the issuer or their tax professional to resolve any
questions about valuation, timing or other issues regarding the income
There is no blanket rule that reward miles are not income, although
consumers may have assumed they are never taxable due to their more
limited use in the past. Treatment of reward miles currently depends
upon whether they are received as a price reduction or rebate, as an
incidental benefit to using a credit card for business travel or as
inducement. In any case, the issue only arises for most practical
purposes if a Form 1099-MISC is filed, which is required only if all
reportable payments exceed $600 for the tax year.