
Any rewards doled out as a bonus for opening up a new bank account, for instance, count as income and may be subjected to taxation. If the value of such rewards total $600 or more, the bank that issued them must mail out 1099 tax form to both the recipient of the rewards and the IRS. Citibank, in fact, has been busy sending 1099-INT forms to eligible checking and savings account customers who earned over 25,000 American Airlines miles over the past year as a bonus through new account recruitment initiatives. Citi reported that each mile has a value of 2.5 cents.
However, rewards earned the “traditional” way, via making purchases with a rewards program credit card, are tax-free. This is because these types of rewards, cash back and others, are categorized by the IRS as a discount on the price of the goods and services purchased – much like a coupon.
"Rewards and airline miles that are provided in connection with a purchase on a credit card are routinely not subject to individual income tax reporting," said a spokeswoman from Citibank, Emily Collins, in an e-mailed statement, according to one online news source.
The mandatory reporting threshold for the IRS is $600, which is why reward point bonuses have not heretofore often been subjected to taxation. However, as competition amongst credit card issuers grew stiff throughout the past year, lenders were continually upping the ante in their efforts to lure new, creditworthy customers into opening up a credit card account by offering them enticing bonuses simply for signing on.
The IRS is always coming up with new ways to prevent Americans from underreporting their income, which creates what is known as a tax gap. The tax gap is the difference that exists between the amount that is owed and the actual amount that is paid. According to the IRS, 82% of the tax gap is due to taxpayers underreporting their income.
In their efforts to decrease the instances of underreported income, the IRS is introducing a new tax form this year, the 1099-K, which will affect individuals who sell goods or services online and receive credit card payments via PayPal or similar merchant accounts.
Read Also Related News
-
20 Mar
The situation with СOVID-19 is rapidly progressing. At the moment, more than 240,000 cases have been registered worldwide. Not a single state was left untouched by the virus. A lot has already been said about precautionary measures. But...
-
28 May
In the modern world, plastic seeks to replace cash. We are so accustomed to cards - credit and debit, that we try to pay with them wherever it is possible. Especially if we are to earn cashback, points or miles rewards for these...
-
19 Nov
Tis the season to spend money we may not have on things we may not need. As the winter holidays approach, many kids are preparing their letters to the North Pole and dreaming of the presents they hope will be under the tree on Christmas...
Customer Questions
-
There are special credit cards that allow consolidation of other cards’ debts - the balance transfer credit cards. These cards usually come with a 0% intro APR on balance transfer offer. The zero introductory period varies, but as a rule it is between six months and two years. So you can find a credit card with...
-
The easiest way to find out if you have credit accounts under your name is to request a copy of all your three credit reports: Experian, Equifax, and TransUnion. The reports contain information about active credit accounts, its issuers, and the information about credit accounts balances. If you want to protect yourself...
-
To set a PIN on your credit card, you should call the credit card issuer at the number on the back of your credit card and request your PIN. After that, the issuer will mail to you your PIN. In the meantime, if you need cash, you can go to a bank office and present your credit card and picture ID.
-
The overall process of getting a credit card can take up to 30 business days. To know the status of your credit card applications you should contact the credit card issuer. A quick online search for the bank or credit card issuer's name should turn up a customer service phone number or email address. Banks and credit card...