Capital One expands credit card benefits it deems taxable, surprises some customers with 1099s

Most people earn credit card rewards or use built-in statement credits on their credit cards to save money ... not rack up a bigger tax bill.

Unfortunately, it seems some Capital One cardholders are receiving unexpected 1099s for using some of their credit card perks — such as statement credits available for application fees on programs like Global Entry.

A U.S. Tax Court ruling from 2021 says that earning points or rebates from a credit card isn't considered income, so what's happening here? Why is Capital One sending out 1099 forms, which are typically used to report income for tax purposes?

Normally, there are some cases where you might receive a 1099 form for bank account sign-up bonuses, bonuses for referring a friend to a credit card or for buying cash equivalents like gift cards and money orders.

For example, TPG reader Kevin Banh got one for referrals he made to others. "I referred 2 for CapOne (50k miles) but didn't get any forms in 2022 for 2021. But referred 4 (100k miles) and got a form this year," Banh said. That's pretty standard since referral bonuses are considered income instead of a rebate on spending.

The same applies to opening a Bask Bank Mileage Savings Account to earn American Airlines AAdvantage miles. The rewards you'll earn are considered interest income. So, you'll receive a 1099 form as these are also not seen as rebates on spending, which are generally not taxable.

What we are seeing from Capital One now, however, is new territory.

Gary Leff at View from the Wing told the story of one of his readers who got a 1099 from Capital One for goodwill points, referral bonuses and statement credits — an unusual combination.

Capital One is now potentially treating statement credits and anniversary bonus points as gifts, which can be taxable and count toward annual reporting requirements. Traditionally, statement credits and bonus points have presumably been treated by the banks as rebates on spending (including spending the money for the card's annual fee) — which the IRS does not view as taxable income.

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A spokesperson for Capital One provided the following statement:

Required reportable payments include certain credits or gifts given to customers including the TSA Pre/Global Entry statement credit and courtesy credits via customer servicing; reportable payments must equal or exceed a total of $600 within a year for a customer to be eligible to receive the 1099-MISC form.

The silver lining here, if there is one, is that a 1099 is not sent by Capital One unless you've received $600 or more in the calendar year in the form of certain credits or gifts.

Additionally, the value of the welcome bonuses you earn by signing up for Capital One credit cards and points earned from everyday spending on the card do not fall into that category. So, most cardholders will likely fall below that $600 threshold. However, customers who earn points by referring friends and family and use these credits may be most at risk of going over that threshold.

If you have questions about a 1099, or believe that the value you received isn't the same as what is listed on your 1099, consult your tax preparer.

Related reading:

• New ruling means some credit card rewards may occasionally be taxable — but don't panic
• What to know about credit card rewards and taxable income
• Quick Points: Earn points, miles and cash back while doing your taxes
• If I cash out my points and miles, do I have to claim it on my taxes?