Usually tax free
As a general rule miles awarded by airlines for flying with them are considered nontaxable rebates as are miles awarded for using a credit or debit card.
The IRS partially addressed the issue in Announcement 2002-18 where it said “Consistent with prior practice the IRS will not assert that any taxpayer has understated his federal tax liability by reason of the receipt or personal use of frequent flyer miles or other in-kind promotional benefits attributable to the taxpayer’s business or official travel.”
There are however some types of mile awards the IRS might view as taxable. Examples include miles awarded as a prize in a sweepstakes and miles awarded as a promotion.
For instance in Shankar v. Commissioner the U.S. Tax Court sided with the IRS finding that airline miles awarded in conjunction with opening a bank account were indeed taxable. Part of the evidence of taxability was the fact that the bank had issued Forms 1099 MISC to customers who’d redeemed the rewards points to purchase airline tickets.
The value of the miles for tax purposes generally is their estimated retail value.
If you’re concerned you’ve received mile awards that could be taxable please contact us and we’ll help you determine your tax liability if any.