2025–2026 Update: The Airport and Airway Trust Fund continues to operate under the authority of the FAA Reauthorization Act of 2024 (PL 118-63), authorized through FY2028. The Act increased AIP funding authorization to $4 billion annually (FY2025–2028), up from the prior $3.35 billion level. The ancillary fee erosion problem remains unaddressed by Congress—Baggage fees: $7.0–7.5B (BTS 2024); total ancillaries: $36–42B (FAA/DOT estimates) industry-wide, with none subject to the 7.5% excise tax. The IIJA/BIL supplemental airport funding (AIG and ATP programs) enters its final year in FY2026, with $2.89 billion in AIG and approximately $1 billion in ATP allocated, after which supplemental federal airport capital funding (~$3.9B/yr) expires, leaving AIP at its $4.0B annual authorization through FY2028 (PL 118-63).
Summary
The Airport and Airway Trust Fund (AATF) is a user-fee-funded mechanism that supports federal aviation infrastructure and operations, with a current balance of $18.14 billion and authorized expenditures through FY2028. Ancillary fees ($36–42B untaxed (FAA/DOT est.) vs $11.2–12.0B ticket taxes (FAA AATF FY2024)) represent a reduction in the AATF tax base as ancillary fees grow and remain untaxed (FAA/DOT estimates, 2024)—ancillary fees such as baggage charges, now totaling $36–42B annually (FAA/DOT estimates), fall outside the 7.5% excise tax, reducing federal aviation funding capacity for 28 of 31 non-primary airports that received >50% capital funding from AIP (FAA AIP grants FY2024).
Considerations for Airport Finance
For airport finance professionals, AATF financial position affects capital planning and federal grant availability. AATF revenue declined by 20–30% during historical recessions (e.g., 2008–2009, CBO data), with ancillary fee growth contributing to the erosion of the tax base, especially for 501 non-hub and 232 small-hub airports eligible for AIP entitlements totaling $1.2B annually (FAA Order 5100.38D, FY2025) for infrastructure development and modernization. Understanding the Trust Fund's tax structure and long-term risks may help inform forecasts of federal support and evaluations of alternative funding mechanisms.
A. Introduction
The Airport and Airway Trust Fund (AATF) was established in 1970 as a dedicated source of federal aviation funding. It represents a user-fee based approach to funding aviation infrastructure and operations, where those who benefit from the aviation system contribute directly to its support. The AATF is the primary federal funding mechanism for AIP grants and FAA operations (26 USC §9502).
The Trust Fund authority may be periodically reauthorized by Congress. Most recently, the AATF was reauthorized through fiscal year 2028 under Public Law 118-63. These periodic reauthorizations are key; historical lapses have occurred, including 23 short-term extensions between 2007 and 2012.
As of the end of fiscal year 2024, the AATF maintained an ending balance of $18.14 billion. FY2025 CBO baseline projection is $20.2 billion (CBO February 2025 Budget Outlook). The balance of $18.14 billion (FY2024 end) comprises 56% passenger ticket tax (FAA AATF FY2024 Statement) and other sources including segment taxes, international fees, and interest income.
B. Tax Structure and Revenue Sources
The AATF is funded by a set of seven excise taxes on domestic and international air travel, each with distinct rates and revenue contributions. The following sections detail each tax component.
B.1 Domestic Passenger Ticket Tax
The domestic passenger ticket tax accounts for 55–60% of total revenue ($11.2–12.0B of $20.2B projected FY2025, FAA AATF data) for the AATF. It imposes a 7.5% ad valorem tax on the purchase price of domestic air transportation. The tax applies to all "amounts paid for taxable transportation" and is collected by airlines at the point of ticket sale, then remitted to the Internal Revenue Service. This tax has remained in place since 1970 and has remained stable for decades and is administered by airlines at point of sale.
B.2 Domestic Flight Segment Tax
In addition to the percentage-based ticket tax, the AATF imposes a per-segment lump sum tax on each flight segment flown domestically. In 2024, this tax is $5.00 per segment (increased to $5.30 in 2026) and is indexed annually for inflation. This per-segment charge adds a fixed component to the ticket tax, with per-segment charges adding approximately $2.5–2.8B annually (FAA AATF data).
B.3 International Departure/Arrival Tax
International flights are subject to a per-passenger tax applied on both departures and arrivals. In 2024, this tax is $23.40 per passenger per direction. Like the domestic segment tax, this is indexed for inflation. This tax recognizes the value of U.S. aviation infrastructure and FAA services to international travelers.
B.4 Frequent Flyer Tax
The AATF taxes awards from frequent flyer programs at a 7.5% excise rate when those awards are purchased from non-airline sources. This tax targets mileage award sales ($300–400M annually, FAA AATF data) and secondary transfers, ensuring the tax base keeps pace with evolving business models in the airline industry.
B.5 Cargo/Freight Waybill Tax
Air cargo and freight shipments are subject to a 6.25% excise tax on the amounts paid for domestic air freight transportation. While this accounts for 2.5–3.5% of total revenue ($500–700M of $20.2B projected FY2025, FAA AATF data), it ensures that all forms of commercial aviation contribute to the Trust Fund based on their use of the system.
B.6 Aviation Fuel Taxes
Aviation fuel is subject to federal excise taxation at differentiated rates based on fuel type and use:
Commercial aviation fuel (Jet A/Jet A-1): 4.3 cents per gallon ($0.043) as of 2026
General aviation fuel (Avgas, 100LL): $0.194 per gallon
Non-commercial jet fuel: $0.219 per gallon
Revenue from aviation fuel taxes represent 1–1.5% of total revenue ($200–300M of $20.2B projected FY2025, FAA AATF data) compared to ticket taxes, but the fuel tax provides an alternative revenue stream less subject to per-ticket taxation pressures.
B.7 Interest Income
The U.S. Treasury pays interest on the Trust Fund balance. With a balance of $18.14 billion (FY2024), interest income provides $500–800M (2.8–4.4% Treasury rate on $18.14B balance, FY2024) to the fund.
C. Trust Fund Revenue Summary
| Tax Source | Tax Rate/Amount | Frequency | Approx. Annual Revenue |
| Domestic Passenger Ticket Tax | 7.5% ad valorem | Per ticket | $11.2–12.0B |
| Domestic Flight Segment Tax | $5.00 per segment | Per flight | $2.5–2.8B |
| International Departure/Arrival Tax | $23.40 per pax | Per direction | $2.2–2.4B |
| Frequent Flyer Tax | 7.5% on awards | As applicable | $300–400M |
| Cargo/Freight Waybill Tax | 6.25% | Per shipment | $500–700M |
| Aviation Fuel Taxes | $0.043–0.219/gal | Per gallon | $200–300M |
| Interest Income | Variable | Annual | $500–800M |
Ranges based on FAA AATF FY2024 data and BTS CY2024.
D. The Ancillary Fee Problem
The central challenge facing the AATF is the growth of airline ancillary fees and their exclusion from the excise tax base. Airlines now generate $36–42 billion annually in ancillary revenue (FAA/DOT estimates), none of which is subject to the 7.5% ticket tax—compared to $11.2–12.0 billion in taxable ticket revenue (FAA AATF FY2024).
D.1 Unbundling of Air Fares
Over the past two decades, airlines have unbundled the traditional all-inclusive ticket. The inflection point occurred when American Airlines introduced the first checked baggage fee in June 2008 ($15 first-bag charge), a practice quickly followed by most major carriers. Services that were historically bundled into the base fare—such as checked baggage, seat selection, priority boarding, meals, and in-flight Wi-Fi—are now offered and priced separately. Baggage fees alone have grown from $5.76B (CY2019) to $7.27B (CY2024), representing 4.8% CAGR (BTS T-100 data). This unbundling reflects both consumer demand for a la carte pricing and airlines' desire to optimize revenue management and base fare competitiveness.
D.2 Tax Treatment of Ancillary Fees
The Internal Revenue Service has determined that ancillary charges, including baggage fees, are not subject to the 7.5% domestic passenger ticket tax. The tax applies only to charges for the "transportation of a person" as defined in the Internal Revenue Code. IRS Rev. Rul. 2009-23 and Publication 510 confirm exclusion of baggage fees from 'taxable transportation' under 26 USC §4261. This tax treatment creates a financial incentive for airlines to unbundle services: by shifting costs from the taxable ticket base to untaxed ancillary fees, airlines reduce their excise tax liability while maintaining or increasing total revenue per passenger.
D.3 Revenue Impact
7.5% of $7.0–7.5B baggage fees = $525–562M (simple multiplication, assuming full inclusion per 26 USC §4261 hypothetical) for the AATF. According to 2024 Bureau of Transportation Statistics data, airlines generated approximately $7.0–7.5 billion in baggage fees in 2024. At the 7.5% excise tax rate, if these fees were subject to taxation, they would generate over $520–560 million annually for the AATF. Total ancillary revenue across the industry—including seat selection fees, priority boarding charges, baggage fees, Wi-Fi, meals, and other services—is estimated at $36–42 billion (FAA/DOT estimates). This creates a gap in the AATF tax base, as the taxable fare component declines while untaxed ancillary fees grow.
D.4 Policy Debate
Various proposals have been advanced to tax ancillary charges. For example, S. 1939 (118th Congress) proposed including ancillary fees in the excise tax base but was opposed by the airline industry (Congressional Record). Proponents argue these fees are effectively part of the total consideration for air travel. The airline industry has opposed these proposals, arguing that ancillary services are not "transportation" and can not be subject to aviation-specific excise taxes. The industry further argues that taxation of ancillary fees would increase ticket prices and reduce the competitiveness of U.S. carriers internationally. As of February 2026, Congress has not acted to expand the tax base, and the shift to untaxed ancillary fees remains unaddressed (CRS Report R44749, 2024 update).