Congress Offers Tax Free Flights… For Now

By Kelly Phillips Erb

As Congress and the President collectively stomp their feet and stick their tongues out at each other over the debt ceiling, frequent travelers are catching something of a break…

It turns out that one of the tax measures that has not been resolved involves federal taxes on airline tickets. Since Congress has not confirmed the Federal Aviation Administration (FAA) budget – putting 4,000 FAA employees on furlough – the laws which authorize the collection of federal taxes on airline tickets have expired. That means that tickets sold after July 22, 2011 won’t include these federal excise taxes.

So how much can you save? It could be quite a bit. Depending on your destination, airline tickets are generally subject to a 7.5% passenger ticket tax, a $3.70 segment tax, a $16.30 international departure tax and a $16.30 international arrival tax, among other fees and add-ons. Those taxes aren’t being collected right now which means that, depending on the original cost of your ticket and where you’re headed, you could save some significant cash.

Unless you fly American and US Airways, that is. Those airlines have boosted their prices in advance of the tax expiration to offset – you know, just because they can. And no, it’s not coincidental. American spokesman Tim Smith was clear that the airline “adjusted prices so the bottom-line price of a ticket remains the same as it was before … expiration of federal excise taxes.” That price adjustment means that cash out of your pocket will go directly into theirs.

Virgin America, however, has turned the whole mess into a savvy promo opportunity. The airline is touting the tax free flights as a holiday with the tagline: Evade Taxes. Take Flight. Book a Tax Holiday. Grab a Seat With Fewer Federal Taxes.

But you have to act fast: there’s no guarantee that the “tax free” flights will continue on any given day.

Congress is supposed to be fixing things (insert hysterical laughter here) but in the meantime, there’s no clear direction for taxpayers. As a result, the IRS issued the following statement:

The laws authorizing the airline ticket tax and other aviation-related taxes expired at midnight on Friday, July 22. The IRS continues to monitor pending legislation related to this issue. The IRS will continue to work with the airline industry to address issues relating to the collection and payment of the taxes involved. Taxpayers do not need to take any action at this time. The IRS will provide further guidance on this issue in the near future.

So how much is this glitch costing us? The Transportation Department has put the price tag on the failure to renew the excise taxes at about $200 million per week. It’s a good thing we don’t need the money.