Is compensation for things like denied boarding taxable?

[Mark in CA]

Any accountants out there who could answer this question? Specifically, I'm referring to compensation received from an airline for things like denied boarding or missed connections.

On the surface, it would seem complicated. For example, I pay US income tax, and last year received compensation for denied boarding for a cancelled US-bound flight originating in Amsterdam. I received a voucher from KLM worth 400 euro for a non-refundable flight in the future, but I could also have exchanged that for 300 euro cash. I have also received substantial cash compensation for excessive delays and missed connections in France.

Does this constitute income? How much? And under which country's jurisdiction might it be taxable?

I've never heard of anyone claiming such compensation as income, and am just wondering if that's a matter of law or just habit.

[ExXB]

Depends on the tax authorities.

[Heathrow Harry]

In th UK it is not taxable but if you pay US income tax then they tax on your wide world income

https://www.irs.gov/pub/irs-wd/0605011.pdf deals with the tax treatment applying to the airlines payment/vouchers

https://www.tripadvisor.co.uk/ShowTopic-g1-i10702-k8099787-American_Airline_Transportation_Vouchers_tax_exemption_etc-Air_Travel.html

has an interesting discussion which suggests that you don't pay tax if it's less than USD 1000

[IBMJunkman]

Well, now that you admit income in a public forum the CA Franchise Tax Board will be looking for you. They were trying to contact my Dad a year after he died. :)

[ExXB]

Did they succeed?

[Mark in CA]

Heathrow Harry -- The first link you offered applies to the airlines and how they account for vouchers, not passengers' tax consequences. The second link seems to be talking about sales tax on a ticket bought using a voucher.

What I am asking about is whether or not the value of the voucher I receive would be considered income by the US tax authority and, therefore, taxed. These vouchers have an actual cash value they can be converted to, less than the face value of the voucher, or actual cash was received as compensation in lieu of a voucher.

[Mark in CA]

IBMJunkman - As I reside in Hungary, and the money in question was not "California sourced," then there should be no problem with the CA FTB. ;)

[Mark in CA]

Simple answer: As the airlines do not have your tax ID information, they are unable to report any compensation to the appropriate government agency. Therefore, my question is moot.

[Heathrow Harry]

Sorry Mark - I thought it was clear that tthe first link applied to the AIRLINES - but it does have some insights into how the IRS see vouchers/ compensation in general

https://www.irs.gov/publications/p525/ar02.html seems to list all sorts of thing you might have as income but they don't list repayments from airlines. A google search doesn't bring up anything either

my guess is that it's such a small amount overall it hasn't come to their notice - they might try and get you under "any other Income" but unless you make a fuss I doubt they'll care - it can't be a vast amount anyway?

[SeenItAll]

It would depend on whether you bought the ticket for leisure or for business. If for business, you would have deducted the ticket's cost from your income. In that case, if you received compensation or a refund, you would have to add that back into your income to be taxed. But if the trip was for leisure and the ticket's cost was not deductible, any compensation you receive would just be like a reduction in the price you paid for the ticket. Not taxable.

I'm not a tax accountant, but that's how I would look at it.

[IBMJunkman]

Did they succeed?
Not that I know of. :)

[Mark in CA]

Heathrow Harry: "it can't be a vast amount anyway?"

On my last trip back to the US West Coast, I received 1600 euros in compensation for three separate incidents, two delays and a denied boarding, significantly more than I paid for my ticket!

[Heathrow Harry]

Yes - we once did so well at Singapore that Mrs H suggested we could make a decent living booking "full" flights and getting bumped......................