More Bad News on Taxes and Points: Amex 1099's Gift Chain Prizes
When Citibank sent out 1099's last month to customers who had received 25,000-point sign-up bonuses for opening checking and savings accounts, the whole points community was up in arms. The tension ahs somewhat subsided a bit thanks to the IRS basically saying it plans to take no major actions on this topic for the time being, but I know many people, myself included, are uneasy with the whole situation. Things are ratcheting up again this week since people have been receiving 1099-MISC forms like the one below from American Express for bonuses and gifts earned through the Amex Gift Chain back in December.
The Gift Chain
As a reminder, the Amex Gift Chain was a special promotion where you registered your Amex card, and then you'd receive a gift for purchases of $25+ between the beginning of December and December 21 (or until supplies lasted). I personally registered my two Amex charge cards and got 10 gifts each for my holiday shopping purchases at participating retailers like J. Crew, Lenovo, Pottery Barn, Toys R Us, Walmart and more.
The assorted prizes I got were Starbucks $5 gift cards, some $20 Amex gift cards, a few statement credits of between $5-20, 500 Amex Membership Rewards points, and a one-year membership to ShopRunner, among other little prizes. Not to jinx myself, but I have not gotten a 1099 from American Express for the Gift Chain so far this year.
The 1099 Tab
This 1099 is from a TPG reader who registered his 7 Amex cards for the promotion and scored gift cards like a $50 Amex one, $10 from Walmart, $2 from Dunkin' donuts, and a $90 statement credit. For the breakdown of 1099 charges, he noted that these were being taxed at their face value as "Other Income."
Where things get murky are that the Membership Rewards points he also earned from this promotion are being taxed at a rate of about 1.5 cents each, with no explanation of the math there. Plus, he got 7 ShopRunner memberships (one for each registered card), which are being valued at a whopping $79 each!
For those of you that don't know, ShopRunner is an online shopping portal that partners with big retailers like PetSmart, Calvin Klein, Timberland, RadioShack and others. When you become a member and purchase items through their portal, you get free two-day shipping on your purchases. The first 30-day trial period is free, and then you are charged either $8.95 a month or $79 for a year. Well, that's where Amex got their taxation value from. However, ShopRunner has given memberships away for deeply discounted rates and even free (just this past December at the same time as the Gift Chain promotion), making this even more of a punch in the wallet!
Not only that, but in this particular TPG reader's case, the ShopRunner membership was usually the first prize he earned in the Gift Chain—no surprise since there were far more of these memberships being rewarded than any other type of prize—before any of the other gift cards, statement credits or MR bonus points, and it happened with each of his cards, adding insult to injury.
A Possible Loophole?
We took a look at the official rules of the promotion again, and sure enough, there's a clause on taxes: "All federal, state, and local taxes, if any, as well as any other costs and expenses associated with Gift acceptance and use not specified herein as being provided are the Recipient's responsibility."
For the ShopRunner membership issue specifically, our TPG reader might still have some hope that he might not have to pay taxes on all of them if he has not yet activated them, per Amex's statement: "1-yr ShopRunner Membership: The Recipient of a 1-yr ShopRunner Membership good for free 2-day shipping on purchases made at select online retailers must click on the link in the confirmation email and create a free one-year account with ShopRunner before February 29, 2012. Limit one (1) 1-yr ShopRunner Membership good for free 2-day shipping on purchases made at select online retailers per Eligible Card. Terms and conditions apply to 1-yr ShopRunner Membership good for free 2-day shipping on purchases made at select online retailers, available at www.shoprunner.com."
Considering even one ShopRunner membership, let alone seven, doesn't seem like such a great deal, I'd suggest asking a tax professional whether you indeed have to report unclaimed prizes as income and hope they say no, so at least you can take a few of those $79 values off your final tab.
Why, Amex?
It just sort of surprises me that Amex is willing to squander the goodwill it engenders with promotions like this by slamming their valued customers with 1099's.
Disclaimer: As always, be sure to consult an accredited tax professional advice before taking any action since I am in no way providing professional guidance on tax issues here.
[card card-name='Premier Rewards Gold Card from American Express ' card-id='22035076' type='javascript' bullet-id='1']
TPG featured card
at American Express's secure site
Terms & restrictions apply. See rates & fees.
| 4X | Earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide, on up to $50,000 in purchases per calendar year, then 1X points for the rest of the year. |
| 4X | Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year. |
| 5X | New! Earn 5X Membership Rewards® points on prepaid hotel stays booked through AmexTravel.com or the Amex Travel App. |
| 3X | Earn 3X Membership Rewards® points on flights booked through AmexTravel.com, the Amex Travel App, or purchased directly from airlines. |
| 2X | Earn 2X Membership Rewards® points on prepaid car rentals booked through AmexTravel.com or the Amex Travel App and cruises booked and paid through AmexTravel.com. |
| 1X | Earn 1X Membership Rewards® point per dollar spent on all other eligible purchases. |
Pros
- Valuable dining and food-related credits
- Flexible rewards with airline and hotel transfer partners
- Multiple travel and purchase protections
- No foreign transaction fees
- Access to Amex Offers for additional savings (enrollment required)
Cons
- Not as useful for those living outside the U.S.
- Some may have trouble using Uber and other dining credits
- You may be eligible for as high as 100,000 Membership Rewards® Points after you spend $8,000 in eligible purchases on your new Card in your first 6 months of Card Membership. Welcome offers vary and you may not be eligible for an offer. Apply to know if you’re approved and find out your exact welcome offer amount – all with no credit score impact. If you’re approved and choose to accept the Card, your score may be impacted.
- Earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide, on up to $50,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year.
- New! Earn 5X Membership Rewards® points on prepaid hotel stays booked through AmexTravel.com or the Amex Travel App.
- Earn 3X Membership Rewards® points on flights booked through AmexTravel.com, the Amex Travel App, or purchased directly from airlines.
- Earn 2X Membership Rewards® points on prepaid car rentals booked through AmexTravel.com or the Amex Travel App and cruises booked and paid through AmexTravel.com.
- Earn 1X Membership Rewards® point per dollar spent on all other eligible purchases.
- Pay It® lets you tap in the American Express® App to quickly pay for small purchase amounts throughout the month and still earn rewards the way you usually do. Plan It® gives you the option to split up big purchases into equal monthly payments with a fixed fee. You’ll know upfront exactly how much you’ll pay.
- Updated! $120 Dining Credit: Earn up to a total of $10 in statement credits monthly when you pay with the Gold Card at Grubhub (including Seamless), Buffalo Wild Wings, Five Guys, The Cheesecake Factory, and Wonder. This can be an annual savings of up to $120. Enrollment required.
- $100 Resy Credit: Get up to $100 in statement credits each calendar year at over 10,000 qualifying U.S. Resy restaurants after you pay for eligible purchases with the American Express® Gold Card. That’s up to $50 in statement credits semi-annually. Enrollment required.
- $84 Dunkin' Credit: Earn up to $7 in monthly statement credits after you pay with the American Express® Gold Card at U.S. Dunkin’ locations. Enrollment required.
- $120 Uber Cash on Gold: Enjoy up to $120 in Uber Cash annually with your Gold Card. Just add your Card to your Uber account and you'll get $10 in Uber Cash each month to use on orders and rides in the U.S. when you select an Amex Card for your transaction.
- New! As an American Express® Gold Card Member, you can enjoy complimentary Hertz Five Star® Status. Enjoy benefits like skipping the counter at select locations, adding an additional driver at no additional cost*, and vehicle upgrades**. Benefit enrollment and Hertz Gold+ registration are required. *Additional drivers must meet standard rental qualifications and must be a spouse or domestic partner to qualify as complimentary. Other additional drivers subject to fees. **Benefits are subject to availability and vary by location. Additional Hertz program Terms and Conditions including age restrictions apply.
- Take advantage of a $100 credit towards eligible charges* at over 1,300 upscale hotels worldwide when you book The Hotel Collection through AmexTravel.com or the Amex Travel App **. *Eligible charges vary by property. **The Hotel Collection requires a two-night minimum stay.
- Book your travel through the Amex Travel App with added peace of mind – backed by American Express® service and support. Only for American Express® Card Members.
- Whenever you need us, we're here. Our Member Services team will ensure you are taken care of. From lost Card replacement to statement questions, we are available to help 24/7.
- No Foreign Transaction Fees.
- Annual Fee is $325.
- Terms Apply.