Complete guide to paying taxes on credit card rewards

Mar 12, 2020

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It’s that time of year again — tax time! TPG is getting many questions about the rewards people have received as sign-up bonuses on credit cards for 2019. For tax reasons, the Internal Revenue Service classifies credit card rewards as either bonuses or discounts. Discounts, rebates and most bonuses are not considered taxable for IRS purposes.

2019 1040 form
2019 1040 form

Are ANY credit card rewards taxable?

Generally, most are not. Standard welcome bonuses (like 100,000 Chase Ultimate Rewards points after spending $15,000 on purchases in the first three months with the Ink Preferred Business Credit Card) are generally not classified as taxable income. Nor are the points you earn for spending on the cards.

The exception to this rule is referral bonuses (for example, getting 20,000 Delta points for referring a friend to the Delta SkyMiles® Reserve American Express Card). The reason this is considered income is because you didn’t have to do any of the spend to get the points. (Your friend, on the other hand, wouldn’t need to pay taxes on the bonus they earn for completing that spend).

Now, there are times when you will be sent a 1099-MISC or a 1099-INT if a card has given you taxable rewards, but not all issuers will send these forms, so you should keep your own notes. We’ve also seen instances where banks mistakenly send these forms even when rewards shouldn’t have been taxed, so if you get one in the mail you don’t need to panic.

What is a 1099?

A 1099 is a so-called information return document for the IRS. It’s the same type of document as a W-2. It shows income you’ve received from a third party. A copy goes to you and one goes to the Internal Revenue Service. A 1099-MISC is used to report “miscellaneous income” paid by one taxpayer to another.

Where do i report the 1099 income?

You should report the income on this income on line 7a of your 1040 under the “other income” from Schedule 1, line 22.

What issuers are sending 1099s?

If you got a referral bonus, you should have received a 1099. If you didn’t, you can request one from your bank or estimate the income. Often your bank won’t send a form unless it amounted to $600 or more in income, but if they didn’t, you’ll still need to report it to the IRS.

American Express

American Express is reportedly sending out 1099s again this year, but only for referral bonuses. At least one of our lounge members got a 1099 from American Express. Look for American Express National Bank letters in the mail. Last year, Amex sent 1099-MISC forms valuing points at between .67 cents/point for Hilton Honors points to 1 cent each for American Express Membership points.

Chase

Chase is reportedly sending out 1099s again this year. Several people in our TPG Lounge report getting 1099s for 2019. Last year they sent 1099s for referral bonuses.. some of those by mistake. Chase is only sending out 1099s this year for those who took part in “refer a friend.” Chase values its points a 1 cent each for tax purposes.

Barclays, Citibank, Bank of America, Wells Fargo, and other banks

Same deal here, anytime you got a referral bonus, you should have received a 1099. If you didn’t, you can request one from your bank or estimate the income on your tax return. Several folks responded to our question about this in the TPG Lounge. Readers have reported getting tax forms from Citizen’s Bank, Fifth Third Bank and SoFi among others.

Are bank account sign-up bonuses taxable?

The short answer here is yes. Because you aren’t doing any spending to get the bonus, it’s considered income for IRS purposes. Also note that points issued as sign-up bonuses for opening checking and/or savings accounts could be considered taxable income.

Is cash back taxable?

No, at least in most cases. A 2010 memorandum from the IRS says cash back is not considered taxable income. However, it was given to you as part of opening a bank account where you didn’t have to complete minimum spend you would need to report it as income.

One final note and reminder. Even if you don’t receive a 1099 you should still report any taxable bonuses as income. The IRS has been known to come after individuals who don’t. And if in doubt, you should always consult a certified public accountant.

More reading: What you need to know about credit card rewards and taxable income

Featured photo by Natee Meepian/EyeEm/Getty Images.

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