Planning to transfer American Express Membership Rewards points to a U.S. airline?
Be ready to pay an excise tax offset fee. However, there’s a way to book domestic flights without paying this pesky fee.
What is an excise tax, and how does Amex charge for it?
The Internal Revenue Service defines excise taxes as those “imposed on certain goods, service and activities” — including certain transactions related to loyalty programs. You’ll frequently see them when purchasing points or miles directly from airlines, but they also come into play with transferable point currencies.
In order to account for these taxes, American Express imposes an “excise tax offset fee” when transferring Membership Rewards points to a U.S. airline’s loyalty program. Here’s how it’s described on Amex’s website:
“Every time you transfer points into a U.S. airline frequent flyer program, your linked Card account will be charged an excise tax offset fee of $0.0006 per point (with a maximum fee of $99). We charge this fee to offset the federal excise tax we must pay when you transfer points.”
As noted, this fee only applies to the frequent flyer programs of U.S. airlines. For Amex, this includes three programs:
Transfers to hotel partners and international airline programs will not be charged this fee.
What does the excise tax offset fee look like?
When transferring to a U.S. airline frequent flyer program like Delta SkyMiles, Amex will prompt you with an excise tax offset fee.
In this example, you’ll need to pay a $30 fee to transfer 50,000 Amex points to Delta SkyMiles. You can also use your points to cover the excise tax offset fee, but this isn’t a good use of your hard-earned rewards. By using 6,000 points to avoid the $30 fee, you’ll redeem each point at just half a cent apiece, which is just a quarter of our valuation of Amex points.
How you can avoid the fee
As noted above, this fee is only charged on transfers to three of Amex’s transfer partners. If you convert your Membership Rewards points to a hotel program’s currency, it’s not imposed. But most importantly, it’s also not charged for transfers to international airline loyalty programs — and you can often use these to book U.S. domestic flights.
For example, if there’s award availability, you can use Virgin Atlantic points on Delta and Hawaiian Airlines. Also, JetBlue TrueBlue is a revenue-based loyalty program, so you may want to crunch the numbers and see if booking those flights through American Express Travel makes more sense. After all, those are treated the same as paid tickets and are thus eligible to earn rewards.
Finally, it’s worth noting that no other transferable points program charges a fee for these transfers. If you have points with Citi ThankYou Rewards or Chase Ultimate Rewards, for example, you can transfer those to JetBlue without any added charge. Or, you can transfer Bilt Rewards points to Hawaiian Airlines.
For the most part, transferring Amex points to Delta, Hawaiian or JetBlue doesn’t make sense, especially since there’s an excise tax on these point transfers. In addition, none of the programs offer spectacular value for your rewards.
The only time we’d recommend doing so is when you’re just short of a given redemption and want to top off your account with just a few thousand points or miles. Even then, be sure to pay the excise tax offset fee with your American Express card, as redeeming Amex points in this way is a terrible value.
Otherwise, stick with hotel programs or international loyalty programs, as that’s the best way to make the most of your Membership Rewards points.
Additional reporting by Kyle Olsen.