Understanding Federal Excise Tax (FET) in Jet Card Pricing

Federal Excise Tax Jet Cards: What Private Jet Users Need to Know

For frequent travelers using private jets or considering private aircraft ownership, it's important to understand the Federal Excise Tax (FET) on jet cards.

This 7.5% tax significantly impacts the overall cost of private jet travel, creating substantial tax implications for jet card users and those utilizing private aviation services.

In this guide, we will discuss FET rates, the broader tax implications associated with private jet ownership, and how these taxes can affect the cost of private jet travel.

What is the Federal Excise Tax (FET) on Jet Cards?

The Federal Excise Tax, often abbreviated as FET, is a tax imposed by the U.S. government on air transportation. This includes commercial flights, charter flights, and jet card programs.

For private jet owners and those who rely on jet cards for frequent travel, the 7.5% FET is added to each flight booked using a jet card. Whether flying within the U.S. or internationally, private jets departing from or landing in the U.S. are generally subject to FET.

Introduced to help fund the federal aviation system, the FET applies to amounts paid for air travel services, meaning each time you book a flight with a private jet card or aircraft charter, you’ll see FET added to the cost. In some cases, FET may also apply to fractional jet ownership arrangements and private jet charter services.

How FET Impacts Jet Card Costs?

For private jet users and aircraft owners, FET is not just an add-on tax but a considerable part of the overall cost structure of private jet cards. Here’s a breakdown of the different factors influenced by FET:

1. Tax Rates on Jet Card Flights

Each flight booked with a jet card incurs a 7.5% FET based on the total flight cost. If your jet card program includes a fixed hourly rate, the FET is applied to that hourly cost each time you fly. For example, if your jet card charges $10,000 per hour, you’ll pay an additional $750 in FET for every hour flown.

2. Additional Costs on Charter Flights

Private jet cards are an alternative to traditional aircraft charter services, but both are subject to FET on each flight segment. If your trip has multiple segments, FET is applied to each one, further adding to the total tax burden.

3. Impact on Fractional Jet Ownership

For those involved in fractional jet ownership, FET is generally applied to each flight booked rather than to the initial purchase price of the fractional share. Fractional share owners often pay FET on each individual use of the aircraft rather than a one-time tax.

4. Business Aircraft and Tax Deductions

If you’re using a private jet or jet card for business purposes, FET and other travel expenses may be tax-deductible. However, consult with a tax professional, as tax deductions are subject to IRS rules.

Tax Implications for Private Jet Card Users

Private jet taxes can vary based on how often you fly, the amounts paid per flight, and the type of ownership or access you have. Here’s a closer look at how FET and related taxes impact different areas of private aviation:

1. Jet Card Cost Breakdown: The National Business Aviation Association (NBAA) states that FET is calculated on the total cost of flights booked with a jet card. This includes additional fees like fuel surcharges and repositioning costs. For frequent users, this can add up significantly over time.
2. Fractional Jet Ownership: Unlike full private jet ownership, fractional ownership may reduce upfront costs, but FET still applies each time you book a flight. This differs from full ownership, where capital costs and bonus depreciation from the CARES Act can reduce overall tax liability.
3. Business and Private Use Implications: Business users may qualify for a FET exemption if they meet certain criteria set by the IRS, though these exemptions are generally rare. For instance, flights operated for medical or humanitarian purposes may not incur FET, but private jet owners and charter operators should consult tax advisors for eligibility.

FET Exemptions and Deductions for Private Jet Users

Under certain conditions, private jet owners may be eligible for tax benefits or exemptions on FET:

1. FET Exemption

Some private aviation services qualify for FET exemptions. Flights provided under fractional ownership or for humanitarian or medical purposes may be exempt. To understand whether your jet card qualifies, consult IRS guidelines or work with an in-house team of tax professionals.

2. Bonus Depreciation

For those who purchase a new private jet or are involved in fractional ownership, bonus depreciation allows you to write off a large portion of the purchase price within the first year. The CARES Act increased the percentage of depreciation allowed, which can lead to significant tax savings.

3. Business Purpose Deductions

For business aircraft or jet card use strictly for business purposes, tax deductions may apply. Private jet owners using their aircraft for business can deduct operating costs under specific IRS provisions.

4. Tax Holidays and Reliefs

Occasionally, temporary FET reliefs, such as a tax holiday, are granted. These “holidays” can reduce the federal excise tax for a set period, though they are infrequent and may not apply directly to jet card holders.

Jet Card Cost Breakdown and Tax Considerations

When assessing the cost of a jet card, here’s a breakdown of how taxes, fees, and other charges add up:

• Hourly Rate: The base cost per hour, to which FET is applied.
• FET Charges: As mentioned, FET adds 7.5% to the cost of each flight hour.
• Fuel Surcharge: Many jet card providers add a fuel surcharge, which can fluctuate with market rates. This charge is also subject to FET.
• Segment Fees: Applied for each takeoff and landing in the U.S., generally around $4.50 per passenger.
• International Fees: For flights outside the U.S., additional taxes may apply depending on the destination.

IRS and Government Involvement in Private Jet Taxation

The IRS oversees FET collection and compliance for private jet travel. Additionally, government policies, such as the territorial system and bonus depreciation benefits under the CARES Act, can influence tax obligations for aircraft owners and business aircraft users.

As policies evolve, private aviation users should monitor any changes, including shifts in tax rates or federal excise rules that could impact jet card usage.

For those with questions about their specific tax situation, IRS Chief Counsel Advice offers resources and rulings on FET, providing clarity for aircraft charter companies and jet card providers.

Minimizing Tax Costs with Jet Cards

Although FET is generally unavoidable, there are ways to minimize the tax burden when using a jet card:

1. Choose Providers with Transparent Fees: Look for jet card companies that clearly outline all applicable fees, including FET, fuel surcharges, and segment fees. Knowing these in advance helps with budgeting.
2. Plan Flights Strategically: For frequent travelers, planning flights to minimize stopovers and segments can help reduce segment fees and FET.
3. Consult with a Tax Advisor: If you’re using a private jet or jet card primarily for business, consult a tax advisor who understands private aviation to identify potential deductions and benefits.
4. Stay Informed on Policy Changes: Tax legislation, like tax cuts or adjustments in the CARES Act, can affect FET and other tax obligations. Remaining aware of these changes allows you to make informed decisions about your jet card or aircraft ownership.

Final Thoughts on Federal Excise Tax and Jet Cards

Understanding the federal excise tax and associated fees is key to getting the most from your jet card or private aviation membership.

With knowledge of FET rates, exemptions, and potential deductions, you can better manage your travel costs and make informed decisions about jet cards and private jet ownership.

Whether flying for business or leisure, being aware of these tax implications helps ensure your private jet travel remains as cost-effective as possible.

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