Airline Pilot Tax Deductions Itemized
A review of airline pilot remuneration
When the aircraft departs the gate for departure ("block out") until the aircraft arrives at the gate regarding arrival ("block in"), the earned income of an airline pilot member is primarily based on the services performed during this period. While most crew members ‘ earned income is calculated by the airline based on flight time. However, much time is spent providing required services (pre-flight, flight, post flight, and training), so earned income must be assigned to the job locations where it was earned.
Furthermore, the most common collective bargaining agreement (CBA) for pilots includes a monthly minimum hourly rate. The airline will pay a pilot for a minimum number of flight hours, regardless of whether those hours were actually flown.
What taxes do pilots pay?
The flight crew is responsible for filing income tax returns and claiming the pilot tax deductions. The tax forms overseas Americans must fill out are lengthy and complex. Being a pilot, however, makes things more difficult.
The IRS considers any flying over international waters to be work done on U.S. soil since it is not "on foreign soil." Thus, the pilot's income earned over international waters is not calculated under the “foreign income” category. Since it appears to have been earned in the US, the pilot has to pay US income taxes.
To comply with this rule, the pilot has to keep track of all of his flight hours each year and how many of them were spent over international waters. Then the pilot pays taxes to the US on the amount he earned flying over the ocean. Therefore, the pilot will, in effect, take a significant pay cut in comparison with co-workers from any other country, where taxation is based on residence.
What can pilots deduct on taxes?
In light of the Tax Cuts and Jobs Act, which was enacted on Jan. 1, 2018, pilots are no longer allowed to deduct travel expenses. Airline companies still take them into account when calculating their tax deductions. Furthermore, money that airlines advance to their pilots and that they reimburse them for travel expenses generally is not deemed taxable income to the pilot.
The obvious question that comes to mind is whether pilot payments are tax deductible? In order to determine if expenses incurred are tax deductible, the IRS provides certain tests that must be met by airline flight crews. These tests can be found in IRS Publication 529 and IRS Publication 463. The tests consist of the following:
- Ordinary Expense: You can consider an ordinary expense anything that is common to the trade, business, profession, or profession you are in. For example, airline pilots may have to pay for items such as uniforms, cardholders, and water bottles.
- Necessary Expense: In order for an expense to be considered necessary, it must be helpful and pertinent to the company. Not all expenses must be required to qualify as necessary. You should ask yourself whether an expense is necessary if it passes the ordinary test.
- Personal Expense: Personal expenses are those you might have incurred regardless of your employment status. A job-related expense passes the ordinary test when it only occurs as a result of the job. The expense of wristwatches and underwear is sometimes deducted by crew members and pilots, but these expenses do not qualify as ordinary expenses. Such items are not deductible. Regardless of whether you were employed or not, the costs would be incurred.
- Tax law cannot prohibit the expense. There are times when a deductible business expense can meet all three tests above but not be tax deductible. For example, the IRS publication 529 of the tax code specifically states that wristwatches cannot be deducted, so unfortunately all of the airline pilots and flight attendants with expensive wristwatches will be disappointed.
The airline crew members have additional tax deductions they can take advantage of:
- The membership fees paid by airline pilots to professional associations are tax deductible. On the contrary, a membership fee paid to an organization or social club for the first time is a capital expense.
- There are two conditions under which educational expenses are deductible:
- The education you need to keep your job or your rate of pay is required by your employer; or
- Maintaining or improving skills is the function of education.
- According to IRS rules, business miles count toward your auto expenses. Include any business miles you rack up when traveling between locations or when you commute between home and temporary work locations. Commuting expenses are those expenses you incur to get between home and work on a regular basis. That is, those expenses we incur while going to and from work on a regular basis are NOT tax-deductible.
Flight Crew Expense Report
The flight crew is eligible for two types of deductions. Expenses such as cell phone, union dues, uniform, etc. are among the out-of-pocket expenses. Per diem allowances (based on per diem rate) and deductions make up the second type of expense. For your tax return to be prepared, details of both types of expenses are required.
So, how much tax can pilots claim? As a general rule, most flight crew members are allowed to claim the following expenses for income tax purposes.
- Every day you spend away from the base is eligible for a pilot tax deduction. You can take either a standard rate for layovers or itemize each layover city, per IRS requirements. You must choose one method during the tax year. An hourly per diem rate of $1.50 to $3.00 is paid out for international flights, while the higher end of the range is paid when traveling outside the U.S.
- According to the Tax Court, any clothing investment made as an essential part of the job which could benefit from protective qualities, such as flight suits, steel-toed boots, etc., can be deducted.
- Maintaining the uniforms required for work is a deductible expense. Laundry detergent, water, and electricity are comparatively inexpensive costs associated with household laundering.
- Essentially any item used for both personal and business purposes is deductible to the extent you use it for that purpose. Among these items is a cell phone for personal use and for work use. It must be both ordinary and necessary for you to carry out your job for the expense to qualify as deductible under your industry's accepted expense policy. It is common for airline employees to use their cellphones and internet connections while checking schedules, contacting dispatch or maintenance, completing required training events, and checking weather and NOTAMs.
- In non-revenue travel, dues are paid to other airlines for the privilege of traveling. These charges are usual and necessary expenses of getting your job done. This includes union dues, drug tests, organization dues, and Loss of License Insurance, among others.
- There is still the possibility of moving expenses for voluntary domicile transfers. The expenses associated with a move (domicile transfer) are deductible if they are work-related.
As an airline pilot who spends a lot of time off the ground traveling within the United States, interstate, or foreign, you need to keep focused on what you need to do. At some point, though, you have to face daily realities, such as filing your taxes. It is crucial to have an expert tax agent as support, to get a successful outcome. They are highly skilled and knowledgeable in tax matters, so they can ensure you get the maximum amount of deductions – resulting in a more favorable tax refund!