Miles are Taxable Fringe Benefits??
 

Here's a new one on me.

I work for a global organization, requiring employees to fly to various locations around the world for work, usually in business class. However, if you choose to save the company some $$ an fly in coach you'll be rewarded with 10,000 Mileage Plus miles (at a cost of $300 to the company, no cost to the employee).

Here's where the fun begins. Someone in the Tax department has decided that this should be a taxable fringe benefit to the employee since the company is basically giving a mileage "gift" for flying coach.

Has anyone else run across this phenomenon? Say it ain't so!!

Unfortunately for you, they appear to be taxable. Here is the section from IRS code for 2002:
Frequent Flyer Miles
Frequent flyer miles are a benefit provided under an airline frequent flyer program. They are also used as a promotional benefit through rental car programs and hotels.

The IRS has announced it will not claim that any taxpayer has understated his or her federal tax liability by reason of the receipt or personal use of frequent flyer miles or other in-kind promotional benefits attributable to the taxpayer's business or official travel. Any future guidance on the taxability of these benefits will be applied prospectively.

This relief does not apply to travel or other promotional benefits in the following three situations:

When they are converted to cash,
When they are used as compensation (payment for your services), or
When they are used for tax avoidance purposes.

http://www.irs.gov/formspubs/page/0,...53,00.html#T12

It seems that since these miles could be considered "compensation", you will have to pay tax (personal observation).

It seems pretty clear to me that you have a legitimate beef with your company's accountants. I don't think that 10K miles are worth the tax you might have to pay on $300 (if that is indeed how you might have to value this "compensation")

I would argue that they are worth closer to $200. (2 cents a mile)

Personally, I'd just fly in business class, let them keep their 10k miles, and not have to worry about paying taxes on the $300 "value" of the miles!

Also, class-of-service bonuses could partially compensate for the 10k miles forfeited (and 10k isn't enough to upgrade from coach to business on most airlines or routes!)

My thoughts exactly, particularly if you select an airline that offers a 50% class of service bonus.

Take a routing of say SMF-IAH-CDG-IAH-SMF (13,000 base miles RT, plus a 6,500 class of service bonus in BF), your net loss of mileage is only 3,500 by taking the company's incentive. Then there's that pesky tax burden...

If they are paying 3 cents per mile for them, then that would be a good indication of their market value and thus tax basis. It would be better if they just let you go in a day early and enjoy whatever city you are visiting (pay for a hotel room, meals, etc.) which also will make you fresher for your meetings.

Depending on the airline, you may receive a class of service bonus for ticketing in business class.

For instance on Delta you receive 150% of mileage flown for a business class ticket and also 200% credit for medallion qualification miles.

Lets say you are flying to BOM which produces somewhere around 8750 miles. You would receive 4375 as a bonus, be far more comfortable, and reach your premium status much faster.

So ultimately you should only consider the 10,000 mile offer's value to be worth about half of that before even considering comfort and taxes. Then, calculate in the tax ramifications and it is a no-brainer about forgoing the miles and flying in business.

This company is making out like a bandit whenever someone accepts their offer. http://www.flyertalk.com/forum/frown.gif

You have to be ignorant to accept this deal.

Someone at your company is basically lying through their teeth. It doesn't cost them 3 cents per mile. A friend of mine purchases miles for his company to use as incentives to employees and clients and they cost 1.5 to 2 cents per mile depending on how many are purchased at a time.



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"A day without Points/Miles is like a day without SUNSHINE"

I think your company is trying to get away cheap - not that I blame them for trying, but why should you go along? The fare difference between business and economy on any international flight is so much more than $300 (or less; they ought to pay less than 3¢/mi.) that it's not even funny. A more reasonable offer would be to split the fare difference with you, fifty-fifty. Those $$ would still be taxable, but you'd have them in $$ and there would be enough $$ to make it worthwhile even after taxes.

If you then upgrade on your own miles, they shouldn't care.

If 10K miles is their best offer, I'd fly in comfort at their expense.

If it costs the company $300 and it will be a taxable benefit, why not just suggest to the company that they pay you the $300 cash?

10,000 MP miles (less the amount you pay in tax) isn't worth it to fly globally in coach. Your company is trying to get away really cheap. Considering that you can "earn" enough miles due to the C class bonus probably equal the 10,000 miles (less taxes), I'd fly in C and enjoy the flight in comfort.

We're a non profit that buys miles as prizes for our top fundraisers, or those that raise some dollar amount, etc. We pay just over two cents a mile plus the processing fees. i would imagine that if we were buying a ton of miles we would be paying less.

You are saving them way more then the value of the miles, of which they are taxing you. Screw them, I'd fly business and take the bounus.

Gee - I've flown coach when entitled to business when my departmental budget was real tight. No miles, no split-the-diff, no cash. Just trying to 'do the right thing'.

At times, there are considerations related to 'taking one for the team'. Sure beats getting layed-off. Heaven knows that there are many people who would be willing to do the travel in coach, with no miles or upgrades, just to have the job.

All this attitude and talk of being screwed by the company - don't think it is the same degree as losing medical benefits or having friends fired. The 10K miles is a token, maybe not the wonderful prize the some feel they deserve, but a token nonetheless.

Let's keep things in perspective.

I think the thing that would upset me is that this scenario would seem to me to be the company forcing me to buy miles for 1.5 cents a mile (50% marginal tax rate on the $300 = $150 for 10,000 miles).