Mileage Award Trap to Avoid

Thinking of signing on with those tempting credit card offers giving you 40,000, 50,000 or 60,000 miles? Before you sign on the dotted line, you will need to know that Uncle Sam may be waiting to get his cut of the deal when you file your tax return. Citibank just sent out 1099 statements to all those who signed up for their programs. While the I.R.S. has not issued a ruling specific to the treatment of this type of award, an "opinion" letter sheds some light that Citibank is probably right. When you earn miles for travel and purchases, it is considered a rebate and is not a taxable event. However, receiving "free" miles to get a new credit card is considered an award or gift and may subject the holder to income tax. At a hefty 2.5 cents per mile, a 50,000 mile award will effectively increase your taxable income by $1250! Credit card companies will bury this detail in their lengthy fine print, which they know nobody reads. So avoid a bad surprise and consult your tax advisor before you sign up for these offers. www.premieretravel.com