As tax reform makes it way through the legislative process, there are many fundamental changes that those who work as airline crew members should be aware of. Assuming that the legislation goes forward as has been passed by committee and makes it to President Trump’s desk before the last day of the year, the following are some of the changes that airline flight crews can expect:
Specific to airline flight crews, all airline flight crews in the USA are accustomed to taking Unreimbursed Employee Business Expenses as a deduction to their taxable income.
Your airline pays you per diem reimbursements based on your contract and work rules, and you can take the difference between that reimbursement and what the US government has set as the per diem rate for the city where you overnight.
As a simple example – you do a turn over Narita. You’re on the ground and off the clock for 14 hours. Your company pays you $75, but the US State department says that your actual per diem deduction is $503.00. You take the difference - $428.00 as a deduction against your earned wages. (This is intended to be a simple example, and not an actual airline reimbursement rate).
The actual effect on an airline crew member is your tax rate multiplied by the per diem difference. In our example, let’s use a 23% tax rate and the $428.00. Your taxes will be $98.44 higher for each occurrence. So at the average of three Narita trips a month by 12 months and this translates to $3,543.84.
This deduction disappears with the Tax Cut and Jobs act.
Also, all of your uniform costs, flight bags, alterations, shoes, uniform cleaning and repair, cell phone or data connection for scheduling, unreimbursed ground transportation costs that you’ve been deducting are also no longer deductible.
What good news is there?
Frankly, nothing. If this part of the Tax Cut and Jobs Act goes through a significant financial cost for you showing up for work and doing what you’ve contracted to do has been transferred to you.
Is that all?
No. Tax preparation fees are eliminated. Medical expense deduction – gone. State or local income tax deduction – gone. Sales tax deduction – gone. Personal or dependent deduction – gone.
You’re likely to be paying a significantly higher tax bill in 2018.
What can I do about it?
Over the next few days:
The obvious is to call your United States Senators and tell them what you think. More importantly, call your Union rep and give them a piece of your mind. Talk to your fellow crew members as well. Share this post on your social media to let other folks know what this bill means to airline crews. The airlines all have labor agreements in place that are based in large part on the current tax system – those agreements will now have to be reconsidered, given that you are all taking a pay cut between 25% and 35% of those previously deductible expenses. If enough of your colleagues join you in contacting your unions, they will immediately contact the airlines and the airlines will send their lobbying muscle into the mix.
As stated above, time is of the essence…
Preparing for the future:
Assuming that this provision of the Tax Cut and Jobs bill stays in place, here are the steps you can take to try to maximize your benefits before December 31, 2017:
- Buy every uniform piece you might need for the next couple of years.
- Buy several pair of work shoes, and hold them for use when your current pairs wear down or out.
- Have all alterations or repairs completed and paid for.
- Check whether your dry cleaner will let you pre-pay for uniform cleaning, or whether they sell gift cards (you can only use these pre-payments for uniform cleaning; for other clothing you can’t create a deduction).
- Pay for your tax preparation before December 31, 2017. See if you can pre-pay for several years. Our office, as an example, will let you lock in a tax preparation fee and pre-pay three years of return preparation at a discount before the end of 2017.
- Replace any flight luggage. Buy spares.
- Keep all of these documents, and make notes in your calendar about these purchases. These records will help substantiate your deductions on your 2017 tax return.
Curious to know how the tax laws could change your tax picture? Check out this terrific tax calculator published by a software publisher. If you’d like more personalized counsel or assistance with your taxes, you can start here.
Douglas Hord is the founder and principal at My Tax Guy in Houston. He specializes in the unique needs and tax situations of airline crew members and others in the travel industry….as well as self-employed professionals, medical and dental professionals, and the entertainment industry. He is also the founder of Fabulair, an airline concept that was either before or after its time.