But this isn't an example of double taxation. A tourist buys his plane ticket with after-tax income and also pays the various sales, gas, security, etc., taxes. People who use awards to book tickets haven't paid income taxes on the awarded value.

Again, I don't recall seeing anyone here who wants awards to be taxed. People have just pointed out the obvious by stating that these awards/points/miles have value, despite the legalese and inconsistent IRS treatment.

True. But I like guys like him coming here. The purpose of a discussion board is not to have a handful of people post something and the rest of us to +1 or ^

As someone once said, I never learned anything from someone I agreed with.

I think the better argument is that we pay taxes upfront on the tickets that earn the miles. Presumably those tickets would cost less if not for the redeemable miles and other FF benefits.

Yup. The airlines aren't giving the miles away for free. We're being charged for them. Which brings up an additional argument about those who are in FF programs are paying for our free flights. Should they get a discount?

I know many corporations negotiate a discounted rate with airlines where they flyers do *not* get FF points.

I've never personally done MS. Don't have time to mess with it and don't know the techniques well enough to decide whether I think anything unethical is taking place. For me, the line would be whether you have to misrepresent yourself or your intentions to get the cards or do whatever you do during MS. I don't know the detailed techniques enough to know whether people do this. I assume it often involves gift cards: in my case, I'd only do it if I knew I'd have a legitimate use for the gift cards. (I guess I have stockpiled Marriott gift cards on occasion...when I can get them at an effective 10-15% discount. But since I personally use them rather quickly for hotel stays, I don't think it qualifies as the kind of MS people do here.)

With some airlines you can choose to not earn FF miles in exchange for a lower fare too.

If I understand this correctly, I think the inconsistency with this argument is that your employer pays the taxes on the employer-paid tickets that end up accruing the miles that you use. While I do not travel much for business, I have done so. I don't think I have incurred any income taxes for expenses related to work-related travel. Have you?

You can argue that, if your employer did not have to pay those taxes, it could pay you more but if you want to go there, almost any argument can be made.

I am struggling to see where there is double-taxation here. In my limited experience, except for the fuel surcharge (which as I understand is just a revenue source for the airline, it is not gummint tax), the taxes and fees on an award ticket are the same regardless of whether it is an award ticket or a cash ticket. Are there additional taxes of say $6K on a $20K award ticket?

But there's nothing wrong with an employer covering an employee's taxes per se (at least as I understand it). Employers commonly "gross up" certain bonuses and other payments/benefits where tax is due but the employer chooses to cover it for employees.

It can get a little complex, but examples just from companies I've worked with:
- Everyone in the company gets a fitness tracker as a holiday gift. The gift is taxable as a fringe benefit valued at $100, so the employer also adds a holiday gift bonus to the employee's paycheck which, after the bonus itself is taxed, makes up the amount of tax owed for the fitness tracker. In this case, the paycheck from which the fitness tracker is taxed ends up being the same net amount as every other regular paycheck that employee receives.
- Company decides to offer the same health benefits to domestic partners as to spouses, but laws in some states do not allow those benefits to be offered for the same premium rates. For those employees, employer adds an additional income payment to each paycheck for the impacted employees which, after taxes, makes up the difference in premiums between spouses and domestic partners. In this case, the paycheck for an employee who enrolls their opposite-sex spouse in a medical plan experiences the same net reduction as an employee who enrolls their same-sex domestic partner in the same plan and has the same salary.

In the case of miles, where we're saying that taxation is included in the original purchase of airfare from which the miles are earned - it's just a bit simpler in that the employer pays the tax directly (or...via he airline), vs. having to make the adjustments on employees' paychecks or at year-end. It's more akin to the employer covering the sales tax when an employee is reimbursed for buying meals or client gifts.

To also circle back from this very dedicated derail, this seems reasonable and more or less matches what I've seen. Voucher or miles = yours. Cash = whoever paid for the ticket.

I think we're talking about two different things here. I think you are talking about the taxes at the time of ticket purchase on (for the sake of argument ) 10 x $1200 tickets paid by your employer for your travel. Taxes on that $12K were say $1K (exact amounts are irrelevant) and were paid by the employer for security etc. I'm talking about a hypothetical $20K ticket that you "earned" from the miles from those 10 tickets on which you paid no income taxes. You did pay security fees, etc. on that $20K ticket but nothing like what income tax would be on $20K. I think, if feasible, that should be taxable as regular income, just like a bonus. Is this still double-taxation?

I actually don't see the double-taxation problem.

I still struggle with the claim that an award ticket is the creation of new income.

I still view the entire system as a marketing/promotion vehicle that carefully ensures that the airlines aren't just handing out "free" seats. My miles may come from many different sources - credit cards, business travel, personal travel, other partners, conversions from hotels, etc. - but none simply emerged in a vacuum. (OK, Southwest used to give me 1 credit per year on my birthday. Maybe that credit is income? ;))

They want *us* to perceive the award seat as this $20,000 item, but those outstanding miles used to acquire it were probably on the airline's books for a couple hundred bucks and even that amount was accounted for every time you eat a meal, rented a car, stayed in a hotel, took a flight, used a credit card, etc.

There is a huge difference between an international first class award ticket and a $20,000 international first class purchased ticket. The former has significant seat restrictions while the latter is available at any time unless the cabin is sold out. The number of award seats is calculated to be the number of unsold seats (obviously it's a guess since it's a future event but the airlines have plenty of data from past flights and use that to set award availability). Therefore the true value of the seat is only the additional cost of fuel it takes for you and your bags to fly from point A to B which is a tiny fraction of $20,000. The plane is going anyway, the employees are paid the same amount, etc. That is why FF mileage liability on an airline's balance sheet is nowhere near the equivalent of published fares and why it makes no sense to tax them at an equivalent published fare amount.

Look at it this way -- the grocery store bakery department makes enough bread to be available all day long. What's left at the end of the day gets marked down and put in the discount bin for the next day. Those are like the award seats, and the sales tax on day-old bread is less since the purchase price is less. A grocery store typically sells day-old bread at 50% off whereas an airline sells award seats for 99% off because of the massive amount of overhead involved in a scheduled flight.

I don't think anyone in this thread is discussing taxing points at published fare amount :confused:

Rather the debate is whether points should be taxed at all.

agreed, and the reason for not taxing points at all is the miniscule amount of money it's worth... $10 or $20 is far less than the reportable amount for a 1099 or a 1099-G (gambling winnings) ... i.e., a total waste of time because the cost of compliance is far more than the tax amount

The IRS doesn't seem to agree, since it considers points awarded on bank accounts — rather than those awarded by credit cards — to be taxable income.