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How Are Bank Promotions Taxed?
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You may have seen an increase in the number of bank deals listed on Bargaineering lately. The reason for the uptick has to do with the economy. As the economy recovers and banks start offering more incentives and promotions to attract new customers, the number and size of these bonuses has been increasing. Two years ago, the bank offers were paltry, if not extinct. If you got more than a toaster out of a new account, you were doing well.
With the return of $100 and $150 cash offers for new accounts, you might be wondering whether or not you have to pay tax on the promotions.
Paying Taxes on Bonuses
Unfortunately, unlike credit card rewards, you will have to pay taxes on bank bonuses. Most banks warn that they will be issuing a 1099-INT for the value of the bonus. If the bonus is a product, they will issue a 1099-INT for the retail value of the bonuses. This note is normally included in the fine print terms & conditions of the promotional offer. How much tax you pay will depend on your income tax rate because 1099-INT is treated as bank interest.
If you plan on taking advantage of several promotions, be sure to put aside some of that bonus money to help pay for taxes. Banks don’t withhold taxes like employers do.
What’s the best bank promotion you’ve gotten?
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When I received my first $10 bonus credit for a referral at ING Direct, I noticed that the Interest Earned YTD went up that $10.
Easy enough to fix on my spreadsheet with another column added in to reflect what I could expect to pay tax on.
The best bonus was $103 on a Black Friday Offer for opening the Electric Orange checking account.
I would have to say the best bonus I got was an ipod touch from Key Bank. I got an awesome prize with very little work. I think I had to do 10 debit card transactions a month for 3 months.
My best was probably an ING Direct $10 referral bonus and an extra $20 promotional bonus I didn’t even know about. I generally don’t go after bank bonuses.
Well its good to know that Uncle Sam will get a piece of my promotional money-making schemes. Thanks for clearing that up.
Uncle Sam always get a piece of the action.
Best promotion I ever got was $121 from ING for opening an Electric Orange checking…this was a couple years ago on Black Friday.
I thought the banks always issued 1099s for those bonuses. I remember my wife joining a citi checking account YEARS ago and she received a 1099 at the end of the year, so I don’t think it’s a new phenomenon.
With products though, getting a 1099 and then paying taxes on it might make the bonus useless if you are getting a product that retails for a very high price but in reality cost much less.
Yes and Yes
Yes always taxed and Yes you are correct.
Thus, I never bother trying to get bank bonues.
Now credit card bonuses which are NOT taxed – them I love and get about 4 each year!
MoneyNing:
Important point here – if the 1099 comes in higher than the retail value at the time the prize is awarded, and you can document that fact, you can claim the lesser value. The key, of course, is capturing the retail value at the time of the award – not six months or so later when the 1099 comes in.
Does retail value mean cost in reality or the suggested retail price? If I can get it on ebay for a cheaper cost, does the “lesser value” count as proof if I can somehow muster a screen shot?
I doubt it because you’ll get a 1099-INT or 1099-MISC from the institution. Unless you want to fight them and have them re-issue, you’re stuck with that retail value number.
Yea I agree with Jim – They aren’t going to reissue a 1099 so you can save $10 in taxes because you think you can buy it for cheaper. Its just the cost of doing business. I’m sure its in their legal type you signed when you started the account. They stated you would be 1099ed and you would accept it.
Just in this morning’s local paper People’s United Bank is offering a free Kindle if one opens a particular checking account with direct deposit.
That sounds like a pretty solid reward. Are you going to do it?
Not too sweet of a deal.
https://www.peoples.com/ct/
$20 Monthly fee if the average balance falls below $5000
Minimum of (2) $250 PAYROLL direct deposits within 90 days.
Minimum of 6 months having the account open. Otherwise they clawback the $139 for the kindle.
The best I’ve gotten was $500 at optionsXpress for just keeping $500 there 6 months and making 1 trade.
Best promotion I have ever got was an iPod Touch (immediately sold it on ebay).
Best account I signed up for was a rewards checking account. It started earning 6.01% and has since dropped to 5.01%. Few hoops to jump through but nothing I wasn’t already doing (10 debit card transactions, paperless statement, 2 direct deposits). In the last 3 years, I bet it has paid me $1,200 even after Uncle Sam took his cut.
I have to admit that I knew about this, but still got somewhat of a surprise when all the 1099s came in — apparently I opened a few more bonus accounts this past year than I realized
Guess I need to track that better in the future…
A little tangential, but Chase sent me a 1099-INT for the one cent I got in interest on my checking account last year. The postage cost more!
I thought the minimum was $10 before they reported it. I didn’t get one this year and I think I earned a whole 4 cents.
Every once in a while I will see a 1099-INT for less than 50 cents. The IRS wants you to round anyway, so you are in the clear ignoring anything under $0.50.
i learned this a few years ago, when i got my 1099 after i filed mt taxes for the year. on the bright side, i learned how easy it was to file an ammended return.
The signup bonus and deposit bonuses I have received from Lending Club are fully taxable at my marginal tax rate…and here I thought it was free money!
Free Money – it (almost) doesn’t exist. HA!
How do you like Lending Club. I did Prosper years ago, but something changed and now if you live in Ohio, you can’t lend… You have a lot of your loans get written off?