Taxation of credit card rewards (cash back and signup bonuses)

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*3!4!/5!
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Taxation of credit card rewards (cash back and signup bonuses)

Post by *3!4!/5! » Sun Oct 23, 2016 9:36 pm

Conventional wisdom (including some IRS statements) is that credit card "rewards" (cash back and signup bonuses) are not taxable income, since they are merely discounts or rebates on purchases you make.**

However Bank of America, and maybe some other banks, are using language that they may nevertheless report credit card rewards on a 1099. Perhaps it is just language to cover themselves. But here is a discussion where BoA CSRs are saying it could really happen.
https://www.fatwallet.com/forums/finance/1531506
They are saying a 1099-MISC could be issued for rewards at least $600. It may be per card or per individual (combining cards and other accounts). There is a question of whether there is a distinction between a statement credit and redeeming to a BoA bank account to gain a 10%-75% boost (depending on status), and also a question of which, if any, portions are actually taxable and/or reportable on a 1099. (It has even been suggested that by taking a $220 deposit in your BoA bank account, rather than a $200 statement credit, you could turn a non-taxable $200 into a taxable $220!)

What this means is that there is a chance you could get a 1099-MISC reporting income to the IRS, even though it should not be taxable, which could be a real hassle to deal with.

Thoughts?

Does this affect your pursuit of credit card rewards?

What do you do when some entity misreports "income" to the IRS?



**There may be exceptions e.g. if purchases are resold or reimbursed, or somehow the discounts/rebates are turned into income, and maybe the IRS wants to look at that. But this shouldn't apply to "normal" credit card use where you simply purchase goods/services and get a discount.

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CABob
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Re: Taxation of credit card rewards (cash back and signup bonuses)

Post by CABob » Sun Oct 23, 2016 10:39 pm

My understanding is that cash back from purchases are not taxable. They basically lower the cost of the product purchased. A bonus or reward for opening or transferring an account is income and is reported on a 1099.
If I am incorrect or there are exceptions I look forward to the correction by other responders.
I have taken advantage of very few of this type of promotion. I think there were two sign up bonuses from Chase that I participated. Most of the offers have too many "strings" attached for my liking.
Bob

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Re: Taxation of credit card rewards (cash back and signup bonuses)

Post by bnes » Mon Oct 24, 2016 12:53 am

Here's a nice edge case for you: I purchase goods for clients, and airline tickets to fly for clients. I am required to submit exact invoices and am reimbursed to the penny.

But my card accounts accrue statement credit, as do flier miles. Especially with the flier miles it's unclear what the value is: what if I never spend them? What if they are devalued before spending?

A good writeup is at:
http://www.thetaxadviser.com/issues/201 ... ry-08.html
Where the IRS guidance for miles works out to:
Consistent with prior practice, the IRS will not assert that any taxpayer has understated his federal tax liability by reason of the receipt or personal use of frequent flyer miles or other in-kind promotional benefits attributable to the taxpayer’s business or official travel

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Re: Taxation of credit card rewards (cash back and signup bonuses)

Post by *3!4!/5! » Mon Oct 24, 2016 1:15 am

CABob wrote:My understanding is that cash back from purchases are not taxable.
Yes that's definitely the conventional wisdom. But they may issue a 1099 anyway.
bnes wrote:Here's a nice edge case for you: I purchase goods for clients, and airline tickets to fly for clients. I am required to submit exact invoices and am reimbursed to the penny.

But my card accounts accrue statement credit, as do flier miles. Especially with the flier miles it's unclear what the value is: what if I never spend them? What if they are devalued before spending?

A good writeup is at:
http://www.thetaxadviser.com/issues/201 ... ry-08.html
Where the IRS guidance for miles works out to:
Consistent with prior practice, the IRS will not assert that any taxpayer has understated his federal tax liability by reason of the receipt or personal use of frequent flyer miles or other in-kind promotional benefits attributable to the taxpayer’s business or official travel
With my "**" I was trying to steer clear of such edge cases. I'm talking about cash (not miles, so value is not so ambiguous***) and in situations where it clearly fits as merely a reduction in price paid for goods/services (that are not resold or reimbursed for).

*** Actually there could be ambiguity in the value of BoA credit card cash rewards, as different redemption methods could give different amounts of cash back. Also there could be question about when rewards are received. But it shouldn't matter as these are just various sized reductions in price paid.

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Re: Taxation of credit card rewards (cash back and signup bonuses)

Post by arp97 » Mon Oct 24, 2016 1:29 am

While this thread refers to credit card rewards/bonus, let me chime in regarding the $300 bonus I recently got for opening a Chase bank account. They handed me a form that said that the bonus is "considered interest and will be reported on IRS Form 1099-INT."

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Re: Taxation of credit card rewards (cash back and signup bonuses)

Post by *3!4!/5! » Mon Oct 24, 2016 1:38 am

I just read this fully. It seems like the point is that the IRS wants to look more closely at all this. Credit card rewards really should not be taxable, but it looks like they may get caught up in the scrutiny. Some financial institutions are choosing to err on the side of over-reporting.
arp97 wrote:While this thread refers to credit card rewards/bonus, let me chime in regarding the $300 bonus I recently got for opening a Chase bank account. They handed me a form that said that the bonus is "considered interest and will be reported on IRS Form 1099-INT."
Yep, that's definitely a classic case of taxable interest.

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Re: Taxation of credit card rewards (cash back and signup bonuses)

Post by mmcmonster » Mon Oct 24, 2016 5:02 am

I've been getting 1099-INT forms from CITIBank Visa and American Express for years, now.

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Re: Taxation of credit card rewards (cash back and signup bonuses)

Post by *3!4!/5! » Mon Oct 24, 2016 12:55 pm

mmcmonster wrote:I've been getting 1099-INT forms from CITIBank Visa and American Express for years, now.
Could you specify what exactly is the "income" that is being reported. I'm not aware of credit card rewards (cash back and signup bonuses) ever having been reported, and if they were, it would be expected on 1099-MISC rather than 1099-INT.

When you say 1099-INT that makes me wonder if it's for something else.

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Re: Taxation of credit card rewards (cash back and signup bonuses)

Post by *3!4!/5! » Sat Jan 21, 2017 12:54 pm

I'm bumping this. People should be getting 1099s now or soon. Some financial institutions have been giving disclaimers that you may get some kind of 1099, or other reporting to the IRS, for things such as credit card rewards that conventional wisdom says are not income (but rather are reductions in price).

I want to see if anyone is getting 1099s or similar forms for this kind of phantom "income".

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Re: Taxation of credit card rewards (cash back and signup bonuses)

Post by dual » Sat Jan 21, 2017 1:05 pm

*3!4!/5! wrote: I want to see if anyone is getting 1099s or similar forms for this kind of phantom "income".
I am sort of curious about this too but not concerned. I think I got over $600 in credit card bonuses from BofA. If I get a 1099 I will include it in my income on my tax return. If not, I won't. I have always gotten 1099misc's for broker and bank account opening bonuses but it is "found" money anyway so I pay the taxes on them and still play the game. 8-)

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Re: Taxation of credit card rewards (cash back and signup bonuses)

Post by ResearchMed » Sat Jan 21, 2017 1:10 pm

*3!4!/5! wrote:I'm bumping this. People should be getting 1099s now or soon. Some financial institutions have been giving disclaimers that you may get some kind of 1099, or other reporting to the IRS, for things such as credit card rewards that conventional wisdom says are not income (but rather are reductions in price).

I want to see if anyone is getting 1099s or similar forms for this kind of phantom "income".
Is this supposedly for both a "bonus" for opening an account/adding a chunk of money *and* for redeeming "points" for airline tickets (or hotel rooms, etc.)?

In the latter case, however would the card issuer arranging the redemption know what the cost of the tickets (or hotel rooms, etc.) was?
Also, last year, we redeemed points, but then had to change our plans, and we put the points "back". How would that be handled?

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Re: Taxation of credit card rewards (cash back and signup bonuses)

Post by *3!4!/5! » Sat Jan 21, 2017 3:47 pm

dual wrote:
*3!4!/5! wrote: I want to see if anyone is getting 1099s or similar forms for this kind of phantom "income".
I am sort of curious about this too but not concerned. I think I got over $600 in credit card bonuses from BofA. If I get a 1099 I will include it in my income on my tax return. If not, I won't. I have always gotten 1099misc's for broker and bank account opening bonuses but it is "found" money anyway so I pay the taxes on them and still play the game. 8-)
Some might choose the convenience of paying tax on non-taxable non-income, but most would what to know how to either not get into that situation (e.g. "realize" less than $600 of non-taxable non-income to avoid a bogus 1099MISC), or else how to fill out your tax return to satisfy the IRS that it is not taxable income.

Also one dollar of extra income can cause thousands of dollars in extra taxes, so bogus income reporting can be a really big deal.
ResearchMed wrote:
*3!4!/5! wrote:I'm bumping this. People should be getting 1099s now or soon. Some financial institutions have been giving disclaimers that you may get some kind of 1099, or other reporting to the IRS, for things such as credit card rewards that conventional wisdom says are not income (but rather are reductions in price).

I want to see if anyone is getting 1099s or similar forms for this kind of phantom "income".
Is this supposedly for both a "bonus" for opening an account/adding a chunk of money *and* for redeeming "points" for airline tickets (or hotel rooms, etc.)?

In the latter case, however would the card issuer arranging the redemption know what the cost of the tickets (or hotel rooms, etc.) was?
Also, last year, we redeemed points, but then had to change our plans, and we put the points "back". How would that be handled?
I don't know what to expect, so I'm trying to gather datapoints. There are issues of ambiguous value, but I'm more looking at cases of reporting when there shouldn't be any reporting at all.

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Re: Taxation of credit card rewards (cash back and signup bonuses)

Post by *3!4!/5! » Sat Feb 04, 2017 2:56 pm

Bank of America has sent out 1099s, so I'm wondering if anyone gas got a 1099 for credit card rewards.

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Re: Taxation of credit card rewards (cash back and signup bonuses)

Post by ResearchMed » Sat Feb 04, 2017 3:12 pm

*3!4!/5! wrote:Bank of America has sent out 1099s, so I'm wondering if anyone gas got a 1099 for credit card rewards.
Was this for cash bonus payments?

If so, have there been *any* cases where 1099's (or other tax documentation, etc.) involved redeeming award points/miles directly for air tickets or hotel stays?

Thanks.

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Re: Taxation of credit card rewards (cash back and signup bonuses)

Post by *3!4!/5! » Sat Feb 04, 2017 3:29 pm

ResearchMed wrote:
*3!4!/5! wrote:Bank of America has sent out 1099s, so I'm wondering if anyone gas got a 1099 for credit card rewards.
Was this for cash bonus payments?

If so, have there been *any* cases where 1099's (or other tax documentation, etc.) involved redeeming award points/miles directly for air tickets or hotel stays?
I'm talking about receiving credit card rewards. It could be cash or some other thing of value such as "miles" or "points" (in which case they decide the value if they choose to report it).

(What you actually do with points or miles is not the issue. It's just receiving them in the first place, and whether it's reported.)

I've seen a couple of claims of people getting 1099s, and there's been discussion that such reporting is planned by banks.

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Re: Taxation of credit card rewards (cash back and signup bonuses)

Post by ResearchMed » Sat Feb 04, 2017 3:40 pm

*3!4!/5! wrote:
ResearchMed wrote:
*3!4!/5! wrote:Bank of America has sent out 1099s, so I'm wondering if anyone gas got a 1099 for credit card rewards.
Was this for cash bonus payments?

If so, have there been *any* cases where 1099's (or other tax documentation, etc.) involved redeeming award points/miles directly for air tickets or hotel stays?
I'm talking about receiving credit card rewards. It could be cash or some other thing of value such as "miles" or "points" (in which case they decide the value if they choose to report it).

(What you actually do with points or miles is not the issue. It's just receiving them in the first place, and whether it's reported.)

I've seen a couple of claims of people getting 1099s, and there's been discussion that such reporting is planned by banks.
Is there any actual documentation of 1099's for *only* the points being issued, and not cash back (other than claims of such 1099's)?

And how would it work when an airline awards points?
Those don't have the choice of an exact $$ values (or do some of them now?).
(And I think some charge cards don't, either, so how would that work? Need to double check if our awards charge card offers the option of cash back. It didn't in the past, but that might have changed. We've always accumulated points/miles.)

Thanks.

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Re: Taxation of credit card rewards (cash back and signup bonuses)

Post by Boston Barry » Sat Feb 04, 2017 3:48 pm

FWIW, my wife and I earned about 1 million frequent flyer points a couple of years ago from credit card signup bonuses, and we did not get any 1099s from Chase, Citibank, American Express, Capital One. None of these rewards involved cash over $600, however, just miles / points.

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Re: Taxation of credit card rewards (cash back and signup bonuses)

Post by *3!4!/5! » Sat Feb 04, 2017 4:34 pm

Boston Barry wrote:FWIW, my wife and I earned about 1 million frequent flyer points a couple of years ago from credit card signup bonuses, and we did not get any 1099s from Chase, Citibank, American Express, Capital One. None of these rewards involved cash over $600, however, just miles / points.
That's what should normally happen. The question is, could that change?

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Re: Taxation of credit card rewards (cash back and signup bonuses)

Post by Mudpuppy » Sat Feb 04, 2017 4:57 pm

*3!4!/5! wrote:
Boston Barry wrote:FWIW, my wife and I earned about 1 million frequent flyer points a couple of years ago from credit card signup bonuses, and we did not get any 1099s from Chase, Citibank, American Express, Capital One. None of these rewards involved cash over $600, however, just miles / points.
That's what should normally happen. The question is, could that change?
Many things COULD change... Worrying about that is likely to work one into a tizzy. And that's also why the forum has a policy to not discuss proposed regulatory changes or laws until they are enacted.

The better question to ask is "has this changed already?"

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Re: Taxation of credit card rewards (cash back and signup bonuses)

Post by *3!4!/5! » Sat Feb 04, 2017 5:00 pm

Mudpuppy wrote:
*3!4!/5! wrote:
Boston Barry wrote:FWIW, my wife and I earned about 1 million frequent flyer points a couple of years ago from credit card signup bonuses, and we did not get any 1099s from Chase, Citibank, American Express, Capital One. None of these rewards involved cash over $600, however, just miles / points.
That's what should normally happen. The question is, could that change?
Many things COULD change... Worrying about that is likely to work one into a tizzy. And that's also why the forum has a policy to not discuss proposed regulatory changes or laws until they are enacted.

The better question to ask is "has this changed already?"
Please read the link in the OP, and the rest of the post. The nature of this thread is really not as you portray it.
Last edited by *3!4!/5! on Sat Feb 04, 2017 6:13 pm, edited 1 time in total.

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Re: Taxation of credit card rewards (cash back and signup bonuses)

Post by selftalk » Sat Feb 04, 2017 5:16 pm

When the government gets real hungry for cash I guess everything gets taxed. In midieval times you were taxed by how long your beard was. The longer the beard the less the tax. That was true.

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Re: Taxation of credit card rewards (cash back and signup bonuses)

Post by *3!4!/5! » Sat Feb 04, 2017 5:30 pm

I think this is more to do with what banks are deciding to do, not the government (though that may influence the banks). The report is that BoA reps stated that they will issue a 1099MISC for credit card rewards over $600. This would mean some would receive 1099s for 2016. There were also claims of some having received these in the past. I wanted to see some datapoints. Maybe this is the wrong forum.

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Re: Taxation of credit card rewards (cash back and signup bonuses)

Post by CuppedUp » Sat Feb 04, 2017 8:43 pm

Just received a 1099 from CitiBank for just under $600 which corresponds to the redemption value of TYP from a checking account bonus. This was expected.

Have not received any 1099s from credit card cash back which run over 5k from Citi alone.

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Re: Taxation of credit card rewards (cash back and signup bonuses)

Post by *3!4!/5! » Sat Feb 04, 2017 9:16 pm

CuppedUp wrote:Just received a 1099 from CitiBank for just under $600 which corresponds to the redemption value of TYP from a checking account bonus. This was expected.

Have not received any 1099s from credit card cash back which run over 5k from Citi alone.
Thanks. Yes that reporting and non-reporting is what you'd expect. Was the "1099 from CitiBank for just under $600 which corresponds to the redemption value of TYP from a checking account bonus" a 1099INT or 1099MISC? Did they convert TYP to $ in a reasonable way?

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Re: Taxation of credit card rewards (cash back and signup bonuses)

Post by CuppedUp » Sat Feb 04, 2017 9:29 pm

1099 Misc. the reported amount was 1.6 cents/point which was applied towards airfare through the TYP portal.

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Re: Taxation of credit card rewards (cash back and signup bonuses)

Post by susa » Fri Aug 18, 2017 6:55 am

Any more datapoints on experience of receiving 1099's of any flavor from Credit Card cash rewards or sign-up (ie. spend 500, get 150 cash back in 60 days) ?

Since we are in Aug 2017, has anything changed from 2016 to 2017 related bank reporting or IRS rules ?

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