In 2002, the Internal Revenue Service (IRS) made it clear that it would not get income taxes from loyalty programs, such as frequent flyer miles or hotel points. However, in the recent months that plan has drastically changed, and this is enough reason to get airlines and hotel owners worried.
According to a report in Politico, businessmen have sent a letter to Treasury Secretary Jacob Lew, stating, “Any change or clarification of loyalty program accounting should be made through the legislative process, not IRS promulgation.”
Nevertheless, customers who enjoy the benefits of loyalty points and have signed up for promotional cards have already begun to suffer the consequences.
In 2012, Citibank sent IRS Forms 1099 to American Airlines-branded credit card holders. Instead of a free plane ticket, these AAdvantage 40,000-mile costumers received a tax bill of 2.5 cents per mile.