Are Credit Card Signup Bonuses and Referrals Taxable?

Disclaimer: This post is not tax advice and I am not a tax professional. Always consult your tax accountant/certified professional for the most accurate information pertaining to your situation.

American Express recently sent out Form 1099-MISC to cardmembers who had referrals in 2018. In the past, cardholders did not receive forms for referrals, so this might come as an unfortunate surprise.

Below is an FAQ of common tax questions regarding signup bonuses and credit card points.

Are Credit Card Signup Bonuses Taxable?

No, credit card signup bonuses are not taxable because they are considered a cash rebate for the product (credit card). You are making purchases to obtain the signup bonus.

Even if the minimum spend amount is as small as $1, it’s still a purchase that is involved to obtain the rebate.

Are Bank Bonuses Taxable?

Yes, bank bonuses are taxable, even when the bonuses are issued as points.

We’ve seen Citi Bank issue Form 1099-MISC for points bank bonuses; they usually value the points at a certain cents per point rate and issue it to you.

To get a bank bonus, you typically have to deposit a certain amount of money or make a certain amount of transactions each month to receive the bonus.

Most banks will issue a Form 1099-INT for bank welcome bonuses.

The respective bank will issue you a 1099 .

Are Credit Card Referrals Taxable?

Credit card referrals are a gray area depending on if you’re receiving points or cash.

For the Discover It card, the referrals are cash-based, so you will receive a Form 1099-MISC.

In the past, credit issuers like Chase and American Express did not issue tax forms because referrals were issued as points.

This week, cardholders received an unexpected surprise in the mail from American Express in the form of 1099-MISC for each card that had referrals.

Value of Points

If you’re someone who maxed out referrals for an Amex card, the maximum amount for each 1099-MISC is $550.

Currency: $550 per referral cap = value of points

  • Amex Membership Rewards: $550 / 55,000 = 0.01 = 1 Cent Per Point (CPP)

  • Delta SkyMiles: $550 / 55,000 = 1 CPP

  • SPG Marriott Rewards: $550 / 55,000 = 1 CPP

  • Hilton: $550 / 82,090 = 0.67 CPP

Should You Report the Form 1099-MISC to the IRS?

Yes, if you receive a Form 1099-MISC, you should include it on your tax return and pay the taxes.

When you receive a tax form from the bank, that means they have reported the income to the IRS on their side.

Can You Deduct Annual Fees?

I recommend talking to your tax professional to see if you can reasonably deduct the credit card annual fees.

Can You Adjust CPP Valuations?

Technically, the cashout rate (without a Schwab Platinum) for Amex MR points is 0.6 CPP. If you want to dispute the CPP valuation, you would make an adjustment for the fair market value of the points.

Again, consult your tax professional for the best way to do this.

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