The Extra Mile

Frequent Flyers Turn Tax Pain Into Mileage Gain

Q&A: Sprint Charges to Earn Miles?

February 23, 2003 - In the spirit of making the best of a bad situation, many consumers look to tax season as an opportunity to pump up their mileage accounts.

There are two ways to earn frequent flyer miles for tax payments.

The first is by having taxes prepared by H&R Block, which offers miles in America West's program and points in the programs of Best Western and Six Continents hotels.

In the case of America West, FlightFund members who have their taxes prepared by H&R Block for the first time will earn 500 miles when completing a tax return using H&R Block's online tax preparation service; 1,000 miles for filing a return at participating H&R Block tax offices; or 2,000 miles for returns filed at a premium H&R Block tax office.

Check with H&R Block (http://www.hrblock.com) or the participating programs for full details.

Or, earn miles by paying tax bills with a credit card linked to a hotel or airline program. Most such cards award one mile for every $1 charged, so a $1,000 tax payment would generate 1,000 frequent flyer miles.

Since the IRS does not accept credit card payments directly, taxpayers must charge payments through one of two companies authorized by the IRS to make collections on their behalf, Official Payments (http://www.officialpayments.com, 1-877-754-4413) or Link2Gov (http://www.PAY1040.com, 1-888-658-5465).

The miles come at a price. Both companies impose a "convenience fee" of 2.49% of the amount charged for federal income tax payments. If you consider the surcharge to be the price of earning those miles, you're paying 2.5¢ per mile. Since miles are normally valued at 2¢ each, that's on the high side. (If the charge generates two miles for every $1 spent, the cost-per-mile is cut in half, to 1.25¢. See the Delta and United double-mile offers, which do just that.)

On the other hand, if the primary reason for paying with a credit card is to spread out the payments, then the convenience fee is rightly so called and the miles are effectively free.

For more on credit card payments from the IRS perspective, see their website at http://www.irs.gov/.

Readers: Miles on their Minds

Question from Jerry S.

I just received my first Sprint long distance phone bill and it lists a $4 frequent flyer excise tax.

Do you have any information about such a tax?

I have had long distance for miles before but not been taxed.

Is this something new?

Answer

No, this is not new.

The tax alluded to on your statement is the 7.5% Federal Excise Tax, which the Taxpayer Relief Act of 1997 imposed on the sale of frequent flyer miles. The airlines simply add that tax to the 1¢ to 2¢ per mile they charge Sprint and other businesses which participate in their programs. Some companies choose to absorb the tax as another marketing expense, others pass it along to consumers who elect to earn miles.

Of the telecom companies which award miles through their partnerships with travel-rewards programs, MCI, Nextel and Sprint all impose a fee to receive miles. AT&T does not.

Sprint customers pay approximately .13¢ (thirteen-hundredths of a cent) per mile, which for most amounts to an annoyance rather than a deal-breaker.