A popular perk of business travel is earning frequent flyer miles and other promotional benefits.
Airlines, rental car companies and hotels have rewards programs that provide promotional benefits to their customers to increase their loyalty.
These miles and benefits can be exchanged for free or discounted travel, upgraded seating, travel services, and more.
Business Travel, Personal Miles
Even though the business trips are paid for by your employer, you may be allowed to use the frequent flyer miles and other benefits for your own personal travel.
IRS Tax Policy on Frequent Flyer Miles
Currently, the IRS doesn’t collect tax from individuals who make personal use of frequent flyer miles earned on business travel.
- You won’t be taxed on the frequent flyer miles or other benefits, either when you receive them or when you use them.
- Your employer won’t withhold income tax and payroll taxes on the value of the benefits.
In addition, any miles you earn by taking a flight or making a purchase with your credit card are not taxable. In 2002, the IRS announced that technical and administrative problems made it too difficult to accurately value airline miles attributed to travel.
When Are Frequent Flyer Miles Taxed?
Be aware that there are some situations where the IRS will tax your frequent flyer miles or other promotional rewards as a taxable fringe benefit.
- Promotional benefits converted to cash
- Compensation paid as travel or other promotional benefits
- Circumstances where these benefits are used for tax avoidance purposes
On the personal side of things, when you receive an offer that promises to give you 30,000 miles for opening a new checking account, pause. Realize that this may cost you tax before you jump at this tempting offer.
Since you don’t have to spend any of your own money to earn the frequent flyer miles, they are considered a gift, not a reward. All prizes or gifts worth more than $600 are taxed.
To recap, while it’s great to take advantage of the benefits that come with business travel, it’s important to keep in mind the rules surrounding taxes on frequent flyer miles and other rewards. You can use the frequent flyer miles from your business trips with no tax. But there are limits: steer away from converting those benefits to cash or receiving gifts of miles.
More Information
If you have questions, contact us to discuss your situation.
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Debra Annis
Debra Annis brings 40+ years of experience in accounting and tax. She helps clients overcome obstacles with cash flow, planning, stability and growth. She enjoys working with clients to find solutions that achieve their plans and avoid paying unnecessary tax.
About Smith Patrick CPAs
Smith Patrick CPAs is a boutique, St. Louis-based, CPA firm dedicated to providing personal guidance on taxes, investment advice and financial service to forward-thinking businesses and financially active individuals. For over 30 years, our firm has focused on providing excellent service to business owners and high-net worth families across the country. Investment Advisory Services are offered through Wealth Management, LLC, a Registered Investment Advisor.
