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.
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.
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- Earn 3X Miles on Delta purchases and purchases made directly with hotels.
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| 3X | Earn 3X Miles on Delta purchases and purchases made directly with hotels. |
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Why We Chose It
Build your loyalty to Delta by applying for the carrier's mid-tier card option, the Delta SkyMiles Platinum card. The annual fee is quickly recouped by the card's travel perks, such as an application credit to Global Entry or TSA Precheck, annual companion certificate and so much more. Plus you can fast-track to elite status simply through card spend.Pros
- Earn bonus Medallion® Qualification Miles (MQMs) and an Medallion Qualifying Dollar (MQD) waiver when you hit specific spending thresholds with your card within a calendar year
- Receive a Domestic Main Cabin round-trip companion certificate each year
- Statement credit for TSA PreCheck/Global Entry fee (up to $100)
- First checked bag free
Cons
- Doesn't make sense if you don't fly Delta
- SkyMiles aren't the most valuable airline currency
- Earn 90,000 bonus miles after you spend $4,000 in purchases on your new Card in your first 6 months.
- Receive a Domestic Main Cabin round-trip companion certificate each year upon renewal of your Card. Payment of the government imposed taxes and fees of no more than $80 for roundtrip domestic flights (for itineraries with up to four flight segments) is required. Baggage charges and other restrictions apply. See terms and conditions for details.
- Enjoy your first checked bag free on Delta flights. Plus enjoy Main Cabin 1 Priority Boarding and settle into your seat sooner.
- New: Card Members get 15% off when using miles to book Award Travel on Delta flights through delta.com and the Fly Delta app. Discount not applicable to partner-operated flights or to taxes and fees.
- Earn 3X Miles on Delta purchases and purchases made directly with hotels.
- Earn 2X Miles at restaurants worldwide including takeout and delivery in the U.S., and at U.S. supermarkets.
- Earn 1X Mile on all other eligible purchases.
- Enjoy a per-visit rate of $50 per person for Card Members and up to two guests to enter the Delta Sky Club when traveling on a Delta flight.
- Fee Credit for Global Entry or TSA PreCheck® after you apply through any Authorized Enrollment Provider. If approved for Global Entry, at no additional charge, you will receive access to TSA PreCheck.
- Earn up to 20,000 Medallion® Qualification Miles (MQMs) with Status Boost® per year. After you spend $25,000 in purchases on your Card in a calendar year, you can earn 10,000 MQMs up to two times per year, getting you closer to Medallion® Status. MQMs are used to determine Medallion® Status and are different than miles you earn toward flights.
- No Foreign Transaction Fees.
- $250 Annual Fee.
- Terms Apply.
- See Rates & Fees