Take Flight

Article excerpt

Byline: Christopher Elliott

Why you should give air miles a wide berth.

What's a frequent-flier mile worth? If you signed up for a Citibank account last year, you might be wondering. The bank offered between 25,000 and 40,000 "free" American Airlines miles to new customers, then surprised account holders by reporting points to the Internal Revenue Service. Citi valued the bonus miles at about 2.5 cents each, which translated into roughly $350 in tax liability for some consumers--or the price of a round-trip ticket from New York to Dallas.

Citi says it's just complying with the law. But the move stunned many in the travel industry. The IRS ruled a decade ago that miles earned from business travel for personal purposes weren't taxable. In recent statements, however, the agency has warmed to the idea of taxing airline miles from new bank accounts.

The most surprising thing about Citi's decision is the value it assigned each mile. A recent survey by NerdWallet suggested the value of most frequent-flier miles clocks in at less than a cent, well below Citi's valuation. Travel columnist Ed Perkins has estimated the retail price of a reward point ranges between 0.7 and 1.5 cents. "Is Citi's valuation fair? …