What you need to know about the American Express Membership Rewards excise

Planning to move American Express Members Rewards Points to a US airline?

Be prepared to pay an excise tax clearing fee. However, there is a way to book domestic flights without paying this annoying fee.

What is excise tax and how does Amex calculate it?

The Internal Revenue Service defines excise tax as a tax “applied to certain goods, services, and activities” — including certain transactions related to loyalty programs. You’ll often see them when buying points or miles directly from airlines, but they also work for transferable point currency.

To calculate these taxes, American Express applies an “excise tax offset” when Transfer Membership Rewards loyalty program of a US airline. Here’s how it’s described on the Amex website:

“Each time you transfer points to a US airline frequent flyer program, your Linked Card account will be charged an excise tax clearing fee of $0.0006 per point (at a rate of $0.0006). up to $99.) We charge this to offset the federal excise tax we pay when you transfer points.”

As noted, this fee applies only to frequent flyer programs of US airlines. For Amex, this includes three programs:

Transfers to hotel partners and international airline programs will not be charged this fee.

Related: A Complete Guide to American Express Membership Rewards Partners

How is the excise tax offset fee?

When switching to a U.S. airline frequent flyer program like Delta SkyMiles, Amex will prompt you for an excise tax offset.

In this example, you will be charged a $30 fee to transfer 50,000 Amex points to Delta SkyMiles. You can also use your points to cover excise tax offsets, but this is not a good use of your hard-earned rewards. By using 6,000 points to avoid the $30 fee, you will redeem each point for only half a cent each, which is only a quarter our pricing Amex points.

Related: 5 times reasonable transfer of American Express Membership Rewards to Delta SkyMiles

As noted above, this fee is charged only when transferring funds to three Amex transfer partners. If you convert your Membership Rewards Points to the hotel program currency, the points will not be imposed. But most importantly, it’s also free to switch to international airline loyalty programs — and you can use them as often as you want. Book domestic flights in the US.

For example, if there is a prize, you can use Virgin Atlantic points on Delta and Hawaiian Airlines. Also, JetBlue TrueBlue is a revenue-based loyalty program, so you might want to compile the numbers and see if booking those flights through Travel America Express more meaningful. After all, those are treated like premium tickets and are therefore eligible to earn rewards.

Finally, it’s worth noting that no other transferable points program charges a fee for these transfers. If you have points with Citi Thank You Bonus or Chase the ultimate reward, for example, you can transfer them to JetBlue at no extra cost. Or, you can switch Bilt Rewards Hawaiian Airlines destinations.

The only time we recommend doing so is when you’re running low on a certain redemption and want to top up your account with just a few thousand points or miles. Even then, be sure to pay the excise tax clearing fee with American Expressbecause redeeming Amex points this way is a terrible value.

Otherwise, stick with hotel programs or international loyalty programs, as that’s the best way to make the most of your Membership Rewards points.

Additional reporting by Kyle Olsen.