120K points from employer
May 3, 2021, 3:08 pm
#16
FlyerTalk Evangelist
Join Date: Apr 2001
Location: MEL CHC
Posts: 20,990
Yeah but the cost to me really is only marginal tax rate X $960 which is like getting 120K points for $380 (assuming tax rate of 40%). This can be considered as a good deal, correct? I don't have the option to get the cash. Seemed like these points can only be used for personal travel.
Other wise the value is nil and you have paid $$$ to the tax office.
May 3, 2021, 3:10 pm
#17
Original Poster
Join Date: Apr 2005
Location: NYC
Posts: 1,756
Are you a W2 employee? I am trying to figure how the employer handles this themselves. If this was a cash bonus, you would not only be taxed, but the employer would pay FICA. I wonder what the mechanics are for the employer to compensate you yet not have some normal tax liability themselves.
May 3, 2021, 3:13 pm
#18
Original Poster
Join Date: Apr 2005
Location: NYC
Posts: 1,756
40% is guesstimate as there might be state tax invovled so I just use it as a worst case scenario. I appricate your advice.
May 3, 2021, 3:15 pm
#19
Original Poster
Join Date: Apr 2005
Location: NYC
Posts: 1,756
May 3, 2021, 3:16 pm
#21
Original Poster
Join Date: Apr 2005
Location: NYC
Posts: 1,756
May 3, 2021, 3:18 pm
#22
Original Poster
Join Date: Apr 2005
Location: NYC
Posts: 1,756
@yoyo, if there's truly no cash option or other option that's more valuable, buying points at a cash cost of ~0.32 cents seems like a good deal. (And assuming that 40% is the effective tax rate you'll pay - that there are no benefits clawed back or anything like that that would increase effective cost to you beyond the applicable statutory income tax rates)
Unlike a contest where the taxable value is usually not stated in advance, it seems that the OP is being provided with explicit notice of what the value of the points will be for tax purposes. The value at which the OP is being offered the miles is also already a discount to the Marriott posted price of 1.25 cents per point, and slightly below Marriott's recent 50% bonus promo sales (0.825 cents per point). So it would likely be challenging to argue with the IRS that 0.8 cents doesn't represent fair market value, since that seems to be below any price Marriott has recently publicly offered and the OP would have been informed of (and essentially agree to) the valuation before accepting the points.
Unlike a contest where the taxable value is usually not stated in advance, it seems that the OP is being provided with explicit notice of what the value of the points will be for tax purposes. The value at which the OP is being offered the miles is also already a discount to the Marriott posted price of 1.25 cents per point, and slightly below Marriott's recent 50% bonus promo sales (0.825 cents per point). So it would likely be challenging to argue with the IRS that 0.8 cents doesn't represent fair market value, since that seems to be below any price Marriott has recently publicly offered and the OP would have been informed of (and essentially agree to) the valuation before accepting the points.
May 3, 2021, 3:20 pm
#23
Original Poster
Join Date: Apr 2005
Location: NYC
Posts: 1,756
120,000 points of what?
I'm inclined to say "yes", since you're probably talking about a US airline and I'd happily buy 120,000 AA, UA, AS, WN, or DL for $400 without thinking twice and without having an immediate use of the miles.
I'd also buy Marriott or Hyatt points at that rate without thinking twice. Hilton or IHG can still be a good deal but I'd want to have a purpose for the points in mind.
Home-grown points from some other travel program....would need more details.
I'm inclined to say "yes", since you're probably talking about a US airline and I'd happily buy 120,000 AA, UA, AS, WN, or DL for $400 without thinking twice and without having an immediate use of the miles.
I'd also buy Marriott or Hyatt points at that rate without thinking twice. Hilton or IHG can still be a good deal but I'd want to have a purpose for the points in mind.
Home-grown points from some other travel program....would need more details.
May 3, 2021, 3:42 pm
#24
Join Date: Sep 2008
Location: SF Bay Area
Programs: None - previously UA
Posts: 4,858
What people are prepared to pay and what fair market value is aren't necessarily that directly related. I would happily pay 0.8C per point to top up my account to reach a threshold to book an award stay. But if someone offered me 120K points vs $960 (taxed or tax free) I might be inclined to choose the latter.
May 3, 2021, 4:50 pm
#25
Original Poster
Join Date: Apr 2005
Location: NYC
Posts: 1,756
What people are prepared to pay and what fair market value is aren't necessarily that directly related. I would happily pay 0.8C per point to top up my account to reach a threshold to book an award stay. But if someone offered me 120K points vs $960 (taxed or tax free) I might be inclined to choose the latter.
May 3, 2021, 5:11 pm
#26
Join Date: Dec 1999
Location: NYC/PHX
Programs: IATA, Sabre, AvgeekAgent
Posts: 1,958
Might be a better alternative or a nice complement to the perk from your employer if you find the points useful.
May 3, 2021, 8:17 pm
#27
Used to be 'Travelergcp'
Join Date: Jul 2003
Location: New Orleans
Programs: AA Plat, Marriott Gold, Hyatt Globalist
Posts: 2,826
I think he’s saying his employer is going to value them at .8cpp cash, so it will add 980 to his taxable income, resulting in 380 in additional tax at his combined 40% marginal fed/state/city rate in NY. That’s something like .3 cpp net.
I’d do it,
I’d do it,
May 4, 2021, 12:28 am
#28
Join Date: Dec 2014
Location: New York City + Vail, CO
Programs: American Airlines Executive Platinum, Marriott Bonvoy Ambassador Elite
Posts: 3,224
What are the circumstances that this came about by the way, seems like kind of an odd compensation element, unless you happen to work for Marriott or maybe Amex/Chase?
May 4, 2021, 1:57 am
#29
Join Date: Jul 2004
Location: Live: IWI; Work: DCA/Everywhere; Play: LAS/SJU/MLE
Programs: AA EXP, DL PM, Hyatt Glob, Marriott Ambassador/LTP, Nat'l Exec Elite, LEYE Gold
Posts: 6,663
Yes, in your case it is essentially a no-brainer. It's possible to redeem 120k points for less than $384 in value, but it's also possible to redeem them for $1000+... and it's not too difficult to get at least $600 in value out of them.
May 4, 2021, 3:47 am
#30
Join Date: Jun 2015
Posts: 1,727
Yeah but the cost to me really is only marginal tax rate X $960 which is like getting 120K points for $380 (assuming tax rate of 40%). This can be considered as a good deal, correct? I don't have the option to get the cash. Seemed like these points can only be used for personal travel.