In the newly passed stimulus bill, in addition to sending a $1,200 payment to most people, there is another change that matters quite a bit to frequent travelers: certain taxes are being suspended, including the federal airline excise tax, under SEC. 4007.

Normally, domestic airline tickets are subject to a 7.5% federal airline excise tax. The bill states that this tax is waived from the date the bill was passed through January 1, 2021, but there will be no refund for tickets purchased earlier. Since the airline excise tax applies only to domestic flights, international ticket prices will not be affected by this policy.

Airfare

We did a quick search for a domestic ticket and confirmed that airlines are not charging this 7.5% tax regardless of whether your travel date is before January 1, 2021. So if you have travel plans for 2021, it may make sense to buy your tickets before the end of this year. Of course, we still do not know whether airlines will use this opportunity to raise fares now and then lower base fares again once the excise tax returns.

AA ticket: no tax

Buying miles

Under normal circumstances, buying miles from a U.S. airline is also subject to the 7.5% tax. Thanks to this stimulus policy, that tax is now waived as well.

AA buy miles page

Transferring points

Similar to buying miles, the tax on transferring points to U.S. airlines is no longer being charged either. [Note: airlines do not seem to have started implementing this policy yet; we are talking about DL.]

Membership Rewards transfer to Delta Sky Miles

So should I transfer points or buy miles now?

Although buying miles and transferring points does save the hard cost of that 7.5% tax, we still recommend doing so only if you have an immediate need. Here are a few reasons:

  • Airlines are in shaky financial shape right now, and miles could easily be devalued by more than the tax savings
  • Outside China, where flights are limited, airfares worldwide are currently not expensive, which lowers the relative value of points. And for flights back to China, you may not be able to book award tickets anyway
  • Bank points hold value better and are more flexible, so they offer better protection against the risk of a single airline devaluation

To repeat the most important point: we do not recommend transferring points early or buying miles just because the tax is waived, since that could end up costing you more than it saves.