Pay Taxes on Frequent Flier Miles? Maybe.

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When Citibank sent a 1099 form to customers who had received American Airlines  frequent flier miles for opening a checking or savings account last year, customers, travelers and even CPAs were confused. With frequent flier miles getting harder and harder to use and their actual worth diminishing as more and more are issued, would this be the final straw for travelers who’ve become disenchanted with these programs over the years?

Maybe not. As it turns out, travelers do not have to pay taxes on earned frequent flier miles because they’re considered a rebate for money spent. Miles received when opening a checking or savings account, however, are considered a gift.

In other words, according to the Associated Press, “a reward given for opening a checking or savings account is not considered a rebate since you don’t spend any money to receive it. So the gift is instead treated similarly to interest income, meaning that it’s taxable.”

So what’s the difference between a gift and a rebate? The Los Angeles Times attempts to get to the bottom of the confusion and quotes an IRS spokeswoman as saying, “A common analogy is buying a $500 television at a retail store and receiving a $50 manufacturer’s rebate. It’s not income, just a deemed reduction of the cost of the television.”

Bottom line? If you received miles for opening any kind of account last year, it’s worth asking your accountant about at tax time.