- Days left
baggageGet out the barbells. It's time to do more lifting to prepare for heftier carry-on bags. That's because airline passengers may be hit with even more expensive baggage fees following a little-noticed recent development.

In a victory for cash-strapped airlines still struggling with lagging demand and high oil prices, the Internal Revenue Service ruled last week that the federal government cannot tax bag fees.

Speaking on behalf of the industry -- which is worried Congress will tax a bevy of additional fees that have angered already beleaguered travelers -- an unidentified carrier asked the IRS to rule on the matter.

Legislators expect to receive a report from the Government Accountability Office this summer on whether not taxing new airline fees for everything from food to blankets to headsets could lower federal tax revenue. The federal government currently taxes ticket sales.

Tax watchdogs have already been concerned that not taxing the fees will take millions of dollars away from the nation's roads, schools and parks and gift it to private industry.

Airlines are becoming increasingly reliant on the standalone fees after they've repeatedly been forced to roll back fare hikes as the recession continues to dampen travel demand.

Analysts said the ruling could prompt carriers to raise baggage fees yet again. Most airlines charge passengers for the first or second bag, although few, including JetBlue Airways and Southwest Airlines, hope that not adding the surcharge will lure travelers away from competitors.

Carriers already hiked the unpopular bag fees recently, with Delta, United and Continental opting to charge $25 for the first bag and $35 for the second.

"This will cause some abhorrent behavior by carriers," said Robert Mann, president of R.W. Mann Co. "These fares are very high margin, whereas a basic fare is somewhere between 10% operating margin in a great year and a negative margin in bad years."

Since the IRS ruling only applies to baggage fees, it's unlikely that carriers will start raising other charges in response to the department's decision, Mann said. But this doesn't mean that they won't continue to think about new ways to charge passengers outside of the basic ticket fee, analysts said.

Fare watchers expect that airlines already earn substantial profits from the fees. Had it charged baggage fees for all of 2009, American Airlines stood to rake in $2 billion, or 10% of its operating revenue, Roger Herbst, a commercial airline pilot and founder of Airlinefinancials.com told Dow Jones news wires.

Increase your money and finance knowledge from home

Introduction to Retirement Funds

Target date funds help you maintain a long term portfolio.

View Course »

Basics Of The Stock Market

Stock Market 101 - everything you need to know but were afraid to ask!

View Course »

TurboTax Articles

What Are the Tax Penalties for Smokers?

Starting in 2014, the Individual Shared Responsibility provision of the Affordable Care Act made you responsible for having minimum essential coverage, or MEC, in health insurance. Otherwise, you need to be eligible for a health care exemption, or you could pay a penalty when filing your income tax return. This requirement for minimum essential coverage applies to smokers and nonsmokers alike. If you're not covered by an employer's health plan and are a smoker, you can go to the health care marketplace to find MEC. If you're still unable to comply, you may have a penalty applied.

5 Steps to Navigate the Healthcare Marketplaces

To navigate the Health Insurance Marketplace, you have to know what you want from a health plan. Have your previous plan handy to make comparisons, as well as household and income information. If this is your first health plan, be aware of your needs and know your tax situation. Eligibility depends on the size of your family and combined income from all sources.

What Is Form 8941: Credit for Small Employer Health Insurance Premiums

Small business owners who subsidize the cost of employee health insurance premiums may be able to get some of that money back by claiming the credit for small employer health insurance premiums on their taxes. Some of the eligibility requirements, however, limit the number of people a business can employ and the average annual wages they earn. Qualifying as a small employer can reduce your tax bill by the amount of the credit you report on Form 8941.

What Is Form 8911: Alternative Fuel Vehicle Refueling Property Credit

In light of rising gasoline prices and environmental concerns, consumers have become more receptive to buying cars and trucks that run on types of fuel other than gasoline. The U.S. government introduced a tax incentive to encourage the installation of facilities to store or dispense alternative fuels in 1992. That incentive has evolved into a tax credit that also applies to equipment that recharges electric cars. If you equipped your home or business to accommodate alternative fuel vehicles, you may be able to use Form 8911: Alternative Fuel Vehicle Refueling Property Credit to reduce your federal tax obligation.

What Is Form 8885: Health Coverage Tax Credit

The health coverage tax credit is a program in place for tax years from 2002 to 2013 to help eligible individuals and families by paying a portion of premiums for qualified health insurance programs. Since the legislation authorizing the credit expired in January 2014, tax returns filed in 2014 for the 2013 tax year represent the last time eligible taxpayers can claim the credit.

Add a Comment

*0 / 3000 Character Maximum