One of the things that make cheap airplane tickets and cheap vacation packages all the sweeter are the frequent flier miles fliers earn. Now there is some question about whether frequent flier miles are taxable.
Recently Citibank started sending customers who were given American Airline miles for opening a checking or savings account last year 1099 tax forms to report their frequent flier miles as income. This is causing confusion and concern among fliers who previously never treated their frequent flier miles and credit card rewards as income before.
In the past, credit card rewards, as well as frequent flier miles and cash back have not been taxable because they are treated as rebates on spending.
The reason Citibank decided to send customers 1099 tax forms was because a reward earned by opening a checking or saving account is not considered a rebate since customers spent no money to receive it. Therefore it is treated as interest income which is taxable.
Citibank has refused to acknowledge publicly the dollar value it placed on the miles given to customers who opened new accounts. U.S. Senator Brown from Ohio called on the bank to stop treating frequent flier miles as income, noting Citi arbitrarily calculates the value of each frequent flier mile as 2.5 cents.
Most experienced frequent fliers value miles at around 1 cent per mile. www.cheapfares.com