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TPG reader Rushabh tweeted me to ask:
“@thepointsguy– Do banks report sign-up bonuses to the IRS? Do we have to pay taxes on sign-up bonuses from credit card offers?”
Rushabh wants to know what his tax liability is for points and miles earned from a credit card, and is concerned he might have to forfeit some of the value of a sign-up bonus. Fortunately, the answer is (almost always) no. In general, frequent flyer miles and points received through credit card sign-up bonuses (or through general spending) are not a tax liability.
A couple years ago, Citibank did start sending tax forms out to those who received bonuses from checking and other banking accounts, but not to those who got them from credit cards. In all my experience, I have never heard of a credit card company sending a tax form for any credit card sign-up bonus, and I have recieved many credit card bonuses in my day, so I think it’s safe to say you probably won’t.
With banking products it’s a bit more dicey. As Jason Steele wrote about recently, some bank accounts and other banking products offer bonuses, such as miles earned for keeping a specific amount of money on deposit, or a sign-up bonus for opening a checking account and completing certain transactions. It’s a pretty grey area; there have been a couple of court cases in which the verdict stated that banks weren’t necessarily in the wrong for sending those tax forms, but so far the government hasn’t pursued any action on sign-up bonuses for credit cards.
In conclusion, with credit card sign-up bonuses you have nothing to worry about, but if you receive a substantial sign-up bonus from a banking products, ask the bank whether you should expect a tax form, and assess the value of that bonus accordingly.
Chase Sapphire Preferred® Card
|Intro APR||Regular APR||Annual Fee||Foreign Transaction Fee||Credit Rating|
|N/A||16.24%-23.24% Variable||Introductory Annual Fee of $0 the first year, then $95||0%||Excellent Credit|