Airline Pilot Taxes: Key Rules and Considerations

The tax circumstances for airline pilots are shaped by constant travel, specific work-related costs, and multi-jurisdictional pay structures. Navigating these rules requires an understanding of how tax authorities view a pilot’s place of business and how their income is sourced across different locations.

Establishing Your Tax Home

For an airline pilot, identifying a “tax home” is a foundational step for managing tax obligations. The Internal Revenue Service (IRS) defines a tax home not as a personal residence, but as the regular place of business. For a pilot, this is the airport where they are based, also known as their domicile, from which flight assignments originate. For example, a pilot living in Orlando but based in Atlanta has an Atlanta tax home, and the cost of commuting between the two is a personal expense.

It is also necessary to distinguish between residency and domicile. A domicile is a person’s permanent home and primary state for tax purposes. Residency can be established by spending a certain amount of time in a state, such as more than 183 days. A pilot can only have one domicile but could be a resident of multiple states.

Navigating Multi-State Income Taxation

A pilot’s workdays can span multiple states, creating complex state income tax situations. Federal legislation provides a safe harbor for transportation employees, preventing a state from taxing a nonresident pilot’s income unless that pilot performs more than 50% of their scheduled services in that state. If this threshold is not met, the pilot’s income is only subject to tax in their state of residence.

To comply with these rules, pilots and their employers use a “duty day” allocation method to source income. A duty day is any day a pilot is required to be on duty, including flight, training, and some standby periods. The allocation formula calculates the percentage of duty days spent in a particular state, which is then applied to the pilot’s total earnings to determine the income attributable to that jurisdiction.

Understanding Per Diem Allowances

Airlines provide pilots with a “per diem” payment, a fixed daily allowance for meals and incidental expenses (M&IE) during work-related travel. When these payments are made under an “accountable plan,” they are not considered taxable income, provided they do not exceed federal M&IE rates. An accountable plan is an employer’s reimbursement arrangement that requires employees to substantiate expenses and return any excess reimbursement.

Any per diem amounts paid that exceed the federal rates are considered taxable wages and must be reported as income. Pilots who are W-2 employees cannot deduct any shortfall if their employer’s per diem reimbursement is less than the federal M&IE rate.

Required Record-Keeping

Pilots must maintain organized records to substantiate tax positions on a return, especially for multi-state income allocation. A detailed flight logbook is the core document for this, used to perform the duty day calculation for state tax filings. This log should contain dates, flight numbers, departure and arrival locations, and specific duty times for every trip.

It is also necessary to retain copies of the airline’s reimbursement policies and all per diem statements. This documentation helps substantiate that reimbursements fall under an accountable plan.