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Will You Have to Pay Taxes on Frequent Flier Miles?

Comstock Images/Thinkstock(NEW YORK) -- When Citibank sent a 1099 form to customers who had received American Airlines frequent flier miles for opening a checking or savings account last year, customers, travelers, and even certified public accountants were confused. Many were left wondering if they had to pay taxes on the miles.

As it turns out, travelers do not have to pay taxes on earned frequent flier miles because they’re considered a rebate for money spent.  But miles received when opening a checking or savings account, on the other hand, are considered a gift.

So what’s the difference?  The Los Angeles Times attempted to get to the bottom of the confusion quoting an Internal Revenue Service spokeswoman as saying, “A common analogy is buying a $500 television at a retail store and receiving a $50 manufacturer’s rebate.  It’s not income, just a deemed reduction of the cost of the television.”

In contrast, being awarded miles for opening a checking or savings account requires no spending on the customer's end.

If you received miles for opening any kind of account last year and are confused on whether you owe Uncle Sam, make sure to bring it up with your accountant when tax time rolls around.

Copyright 2012 ABC News Radio

ABC News Radio