IRS grounds tax refunds for airline passengersKen Berry
August 16, 2011 — 1,194 views
Despite earlier reports, passengers who booked flights before certain excise taxes for airline travel expired won't be entitled to tax refunds after all.
The federal excise taxes were suspended after a stand-off in Congress on July 22, 2011 regarding Federal Aviation Association (FAA) operations. Almost 4,000 FAA employees were furloughed and over 200 projects were immediately put on hold. However, the Senate approved legislation ending the shutdown on August 5, 2011 and airlines were authorized to reinstate the taxes on August 8, 2011. The measure was also signed by President Obama on August 5, 2011, providing temporary funding of the FAA until September 26, 2011.
Initially, the Internal Revenue Service indicated that passengers who purchased their tickets before July 23, 2011 for travel scheduled after July 22, 2011 would be reimbursed for taxes collected by the airlines. The airlines were instructed to remain on stand-by while the IRS worked out the refund procedures. But the IRS now says that passengers who took flights during the two-week shutdown aren't eligible for any refunds. The IRS also indicated that it intends to provide relief to passengers and airlines relating to ticket taxes that were not paid or collected because of the suspended services.
Typically, airline passengers are charged federal excise taxes, which are included in the standard cost of the air fare. The airlines collect these taxes and remit them to the IRS. This includes the following taxes which were suspended during the shutdown:
- 7.5 percent tax on the base ticket price;
- $3.70 per person per trip segment;
- International travel facilities tax of $16.30 per person for flights that begin or end in the U.S. or $8.20 per person for flights that begin or end in Alaska or Hawaii; and
- 6.25 percent on the amount paid for transporting property by air.
When you add it all up, it comes out to much more than spare change for airline travelers. The taxes can be as high as 15 percent of the ticket price.
Strategy: Don't let your clients be misled by incomplete news reports or misinformation on this matter. They may be expecting a big tax refund that won't be coming their way. It's no fun being the bearer of bad news, but it's important to keep your clients completely up-to-date and informed about the latest tax developments.