Friday, August 5, 2011

Federal Taxes Are Returning

Fortunately (or unfortunately?), the Senate has finally passed legislation temporarily funding the FAA, allowing about 4,000 furloughed employees to return to work. President Obama signed the bill just a few hours ago. While this is great for the FAA, it also means that the federal government will now return to collecting taxes on all airfare. Officially, airlines will be required to start charging federal taxes again at 12:01 AM on Monday August 8, 2011.

Most airlines have already raised ticket prices in the past few weeks to match the reduced taxes, and stand to reap upwards of $1.3 billion. I don't, however, expect to see a jump in airfare starting on Monday. Instead, airlines will most likely adjust the base fares down to their pre-tax holiday levels. Alaska Airlines, Hawaiian Airlines, and Virgin America were the only airlines to pass the tax savings on to consumers during the entire FAA shutdown.

Meanwhile, based on instructions the IRS issued today, customers who purchased tickets prior to July 23, 2011, and flew during the FAA shutdown are NOT eligible for a refund on the taxes and fees paid. The government, however, will not be retroactively collecting the unpaid taxes owed during the shutdown, so those who took advantage of the tax holiday can breathe a sigh of relief. Visit the IRS website for more information.

Finally, if you haven't bought miles or transferred your American Express Membership Rewards points to an airline program yet, make sure you do so before 12:01 AM on Monday August 8, 2011! I went ahead and took advantage of the Delta Skymiles transfer bonus with 40% rebate on Membership Rewards points last night and didn't have to pay the $30 in federal taxes that would have come with it. This is in effect a 67% Skymiles bonus on transfers of 50K MR point increments through September 30, 2011.

The worst part about this whole situation is that in just 6 short weeks, Congress will have to take up the issue all over again to avoid another lapse in funding for the FAA. And since none of the core political differences that caused this impasse has been resolved with today's temporary resolution, expect more partisan bickering and perhaps another shutdown in the coming month.

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