Reporting Frequent Flier Miles as Income?

Citibank gave customers frequent flier miles when they opened an account and now Citibank is sending all of these clients 1099 forms to report these miles as income. The bank valued these miles at 2.5 cents a mile, but really the fair market value is more like a penny per mile.

Forbes points out that Citibank may be within its rights though. While tax law forbids the IRS from taxing miles that are handed out traditionally, giving miles to induce clients to open an account with the bank may look more like interest. Many customers are likely to be upset by this and are not left with much of a choice but to report the income if they want to avoid scrutiny from the IRS.

If your 1099 is inflated though, you should report the gross income on your 1040 and then claim an adjustment to bring the income down to a fair amount. The adjustment can be put on line 21 of your return or on Schedule B. Forbes is not certain whether other banks are going to follow Citibank’s lead yet or not.

See William Baldwin, New: Taxation of Frequent Flier Miles, Forbes, Feb. 3, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.