MilesBuzz! - An airline tells what a mile is worth

Northwest Airlines is running a promotion called "Fly Free Faster." One of the parts of the promotion is that seven sweepstakes winners will each receive One Million Miles.

A direct quote from the rules: "Seven winners will each receive One Million Northwest Airlines WorldPerks Bonus Miles. Miles are redeemable for awards offered in the WorldPerks program. Average Retail Value (ARV): $20,000/each."

So there you have it. One million miles is worth $20,000; each mile is worth 2 cents. At least as far as Northwest is concerned.

See also:
http://www.flyertalk.com/forum/Forum1/HTML/003114.html
http://www.flyertalk.com/forum/Forum35/HTML/001149.html

Interestingly, the prize I won in the Starwood Win The World sweepstakes (or, at least, the one I was allowed to keep!), is valued on the 1099 at $1425, including $800 for the 2 nights at the St. Francis in San Francisco. That leaves $625 for the 50,000 United miles that they gave me, or a value of $.0125 per mile.

Or is that just the lower value because they are United miles? http://www.flyertalk.com/forum/wink.gif

Djlawman

There have been several court cases in which prize-winners claimed that prizes were over-valued by the donors: things like valuing air travel at full economy fare, even though the conditions attached to a prize would have entitled the winner to a much lower fare. They do this to reduce their corporate income tax. Unfortunately, since the recipient has to pay personal income tax on the value of the prize (hence Djlawman's Form 1099), it increases his or hers at the same time.

The IRS is aware of this and will accept a lower prize value for income tax purposes if a taxpayer can show it would have cost less than the claimed figure to purchase the goods and services in question. A letter from a travel agent, itemizing the components with the fair value of each, is usually enough. You may have to pay the TA for doing the research and writing the letter, but it could be worth it.

What they would do about a prize that included FF miles is, AFAIK, an open question.

(I am not a lawyer or a CPA. This advice is worth no more than you paid for it, perhaps less.)

Do you really need to pay TAX on such a prize in the USA??? Wow. http://www.flyertalk.com/forum/frown.gif

Someone just won $A30,000,000 here in a lottery type deal. You get it as a single cheque, right here and now, not the UA "drip-feed" type deal over many years, and such wins are totally free of federal income tax, and we have no state income tax, or county income taxes in Australia.

------------------
~ Glen ~

Glen, you need to pay tax on most if not all winning in the USA just like other prizes. Maybe it's just that Costello's fiscal fiends haven't caught up with this yet down in OZ?

Oz - The situation re taxes is essentially the same in the UK. Lotteries, prizes, etc. are tax free. Betting is taxed, but you can choose in advance to pay the tax on your stake or your winnings.

For the National Lottery, about 25% of the cost of the ticket goes to the exchequer, but the prize is given to you in one go without deductions http://www.flyertalk.com/forum/smile.gif

Originally posted by Paul3456:
Northwest Airlines is running a promotion called "Fly Free Faster." One of the parts of the promotion is that seven sweepstakes winners will each receive One Million Miles.

do you have a link to this promo? I can't find it at nwa.com.

http://www.nwa.com/flyfreefaster

I think contest, lottery and other winnings in Canada are tax-free too.

FWIW, I think the U.S. I.R.S. (well, Congress since the I.R.S. only enforces tax laws) taxes these winnings otherwise some tax accountant will structure methods to give prizes away to a winner where there is only one entrant in the contest/lottery.

If one wins the California State Lottery they are exempt from state income taxes but still must pay federal income taxes.
You have a choice of taking payments over 26 years equal to the value of the lottery or receiving a lump sum "cash value" (equal to the annunity that would have been purchased to pay you over the 26 years.)

Because of the awards I get with my miles, I peronally value miles at $0.025 but I would value NW miles closer to $0.01 just because the product you get isn't worth much.

Well, the $20,000 value is probably assigned for tax purposes. The real value depends on what you will use the million miles for. Maybe 10 business class seats from US to Asia plus a few business class to Europe? A $20,.000 value would make these business class tickets worth less than 2,000 each. I don't think so. Or perhaps 20 roundtrip business/first CO tickets New York to Hawaii ? Can you buy them for 1,000 each?