MilesBuzz! - value of ff miles and experience with company reimbursment plans??? Any experience?

My place of employment is thinking about implementing a reimbursment program whereby travelers using their ff miles for travel will be reimbursed for half the value of the savings. It would be valid for coach or business fares for certain overseas trips. Does anyone have any experience with such a program? Here's my one concern- which may not be much concern.

Lets say you go from BWI to Tokyo in C for $6000. You use your ff miles and are now under this plan entitled to $3000. I know in the past I've read that airlines value ff miles at two cent per mile. Wouldn't my place of business be getting ripped off if they gave an employee three grand for this? Or is this truly a win-win? Should there be any tax concerns?

Many thanks in advance for your thoughts on this!

Here's what my company does:

Using Miles for Busines - In order to cut the high cost of business travel, X has instituted a voluntary Frequent Flyer BuyBack program. To participate, you must use your frequent flyer awards to "purchase" tickets for necessary business trips. X will then reimburse you 60% of the lowest fare for your itinerary, net of taxes.

Flying Y, when could be in C - Travelers approved to fly business class for international travel with flights over 10 hours, may elect to fly coach and be reimbursed for 75% (net of taxes) of the difference between the business class fare and coach fare.

I've never done it because my travel is domestic and I usually have cheaper tickets, but in the right scenario seems to me to be a great deal. Win-win for you and the company. The situation of using your miles though I guess the airline could say you "sold" the miles. Not sure how you'd get caught, since your flying in your own name, but the issue could be debated as against the airlines rules.

Your question on the 2 cent valuation is valid, but the company just saved 40% or 25% respectively in real dollars.

It might also be worth checking the individual income tax consequences of programs such as these. Miles are not taxed on receipt, but in some circumstances I believe that it is possible that transfers of miles into cash (or other such reimbursements in excess of the actual paid cost of travel) could be considered to be compensation for US income tax purposes. Of course, individual program details and circumstances may vary greatly in this respect.

The tax implifications of our program are below...

"Frequent Flyer Tickets: Mileage Compensation - Using your Miles for Business Trips

To offset T&E costs for Bozo, while providing a benefit to employees, frequent flyer miles may be used to purchase a domestic or international ticket for business purposes. Bozo will compensate 60% of the lowest applicable fare quoted by Bozo Travel (including non-refundables). This compensation will be taxed at bonus withholding rates and added to the employee's W-2."

Our policy, subject to customer approval is.....
is also 1/2 of the cost.

Lowest avaiable ticket off one of three web based travel sites, subject to project manager approval.

We also looked at the tax implications but since we have no way of identifying the source of the miles, it is subject to 1099. (What if the miles are from personal credit card useage, the whole reimbursement would be TAX FREE as it would / could be construed to be a recovery of basis....) http://www.flyertalk.com/forum/smile.gif

------------------
Oracle Implementations .... Will Travel....

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by standby:
Lets say you go from BWI to Tokyo in C for $6000. You use your ff miles and are now under this plan entitled to $3000. I know in the past I've read that airlines value ff miles at two cent per mile. Wouldn't my place of business be getting ripped off if they gave an employee three grand for this? Or is this truly a win-win?</font>

The "standard" valuation (I'd put it a bit lower, but 2¢ isn't far off) is based on a domestic U.S. round trip, the most frequently used award at many airlines, at about $500. Other uses, especially international flights in or upgrades to business/first class, give a higher valuation. The economic argument against using that figure as the value of miles is that most people who redeem those awards wouldn't have flown in that class if they had to pay, but that doesn't negate the higher value in your situation.

It's a win-win for you and your company. The airline is out the cash they would have recieved for your C seat, but do you see supporting airlines financially as your purpose in life? (I know, for some of us it sometimes feels that way...)

What do companies with these reimbursement programs do if travel plans change and tickets need to be bought. For example employeee travels to meeting on tuesday. Scheduled to come back thursday. Meeting takes longer than expected and employee needs to come back friday. No FF seats available for the return until 1 week later so employee has to buy full fare ticket. FF ticket return is wasted. Do companies end up paying for the FF ticket and also the full fare ticket.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by TxLobo:
We also looked at the tax implications but since we have no way of identifying the source of the miles, it is subject to 1099. (What if the miles are from personal credit card useage, the whole reimbursement would be TAX FREE as it would / could be construed to be a recovery of basis....) http://www.flyertalk.com/forum/smile.gif

</font>

http://www.flyertalk.com/forum/confused.gif How do you figure that? And wouldn't the amount still be reportable on 1099 (or is that what you said)?

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by Counsellor:
http://www.flyertalk.com/forum/confused.gif How do you figure that? And wouldn't the amount still be reportable on 1099 (or is that what you said)?

</font>

sorry, it MIGHT not be taxable. If the miles were 100% for a personal event such as a vacation, purchase of food on Credit card, etc.. the IRS would deem this a "REBATE". No different than the rebate you get on a new car purchase for personal use, that CAR rebate is not taxable, neither would the REBATE (FF ticket) be either.

Do not let the above confuse you, if 100% of your miles are from company travel that you were reimbursed for or took as a tax deduction, then the use of the Frequent Flyer miles would be 100% taxable as well.

The complications of going through your Frequent Flyer account and determining which are taxable miles and which are non-taxable miles since they have been commingled is the reason that the IRS threw up their hands on this whole issue.

Issuing the 1099 allows the employee to handle the item on their Tax return in the proper manner determining whether it is taxable or not based upon their method of accumulating Frequent Flyer miles.

------------------
Oracle Implementations .... Will Travel....

[This message has been edited by TxLobo (edited 10-09-2003).]

If I remember correctly, what little guidance there is from the IRS indicates that the cash transfer from the employer makes the transaction described in earlier posts potentially taxable to the employee.

I remember the IRS providing guidance that the use of frequent flier miles for personal trips is nontaxable on the theory that it is similar to a nontaxable rebate like you referenced above and that the fact that some of the miles might have been earned on reimursed business travel would not change that conclusion due to the administrative impracticality of tracking the source of miles. Howver, the tranfer of the miles for cash, regardless of whether the cash comes from the employer, would be taxable if I remember the ruling correctly. What I'm trying to say is that the sale of miles earned entirely from the use of a personal credit card would seem to me to be entirely taxable (even though the use of the miles for a trip for which no cash is received would be nontaxable)

I do believe a reasonable position exists for placing the amounts on a 1099 rather than a W-2 since the employee could have basis in some of his miles that would be a deduction on the form on which he reports the 1099 income. For instance, the employee could have purchased some of the miles from the airline. Also, there are other transactions that might generate basis for the miles. Normally, a tax department is trained not to issue a W-2 and a 1099 to the same individual (absent special circumstances) so this concept may have to be explained in detail.



[This message has been edited by Andy2 (edited 10-09-2003).]