What to know about American Express Membership Rewards excise taxes
Are you planning to transfer American Express Membership Rewards points to a U.S. airline? You might want to take advantage of this workaround to transfer your Amex points to Alaska Airlines Mileage Plan.
Note: You’ll have to pay an excise tax offset fee. Here’s an explanation of how it works — and how to book domestic flights without paying this pesky fee.
What is an excise tax, and how does Amex charge for it?
The IRS 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 points currencies.
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.
Related: American Express Membership Rewards transfer partners: Maximize your points
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What does the excise tax offset fee look like?
When transferring to a U.S. 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, or a quarter of our September 2024 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 domestic flights.
For example, if there’s award availability, you can use Virgin Atlantic Flying Club points on Delta Air Lines 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 for 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 points, for example, you can transfer those to JetBlue without any added charge.
Bottom line
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 points transfers. Additionally, none of the programs offer spectacular value for your rewards.
We’d recommend doing so only when you’re just short of a given redemption and want to top off your account with just a few thousand points or miles — or to transfer your Amex points to Hawaiian Airlines and then to Alaska Airlines. 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 or international loyalty programs, as that’s the best way to maximize your Membership Rewards points.
Related: How to redeem American Express Membership Rewards for maximum value
