Do You Owe Taxes on a Credit Card Sign-Up Bonus?

Promotional offers on credit cards from backs are enticing, but keep in mind sign-up bonuses may mean you owe money to Uncle Sam.

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Banks are always promoting their credit card offers and sometimes they entice potential customers through the use of sign-up bonuses, which may include cash, points, airline miles, gifts or other financial services. Only some of these bonuses must be reported to the IRS because you have to pay taxes on them,.

“How can I tell which sign-up bonuses must be reported on my tax return?” It’s a common question among consumers who take advantage of such promotional bank offers.

Sign-up bonuses you receive for opening a deposit account or making a deposit are considered interest income—making them subject to taxes. For example, you have to report the $100 bonus you earned for applying for a new checking account and posting a direct deposit.

When you sign up for an account with a bonus, the bank should note—often in the fine print—that you will receive Form 1099-INT at the end of the year. This is the same form you might receive when you earn interest on an interest-bearing account, such as a savings or money market account.

In the event the bonus comes in noncash forms, you’re still responsible for reporting it to the IRS. “If your receive noncash gifts or services for making deposits or for opening an account in a savings institution, you may have to report the value as interest,” the IRS says in Publication 550 Investment Income and Expenses. “For deposits of less than $5,000, gifts or services valued at more than $10 must be reported as interest. For deposits of $5,000 or more, gifts or services valued at more than $20 must be reported as interest. The value is determined by the cost to the financial institution.”

However, this rule doesn’t apply to credit card sign-up bonuses that carry a spending requirement. For instance, a credit card deal may offer you $100 cash or 20,000 bonus miles if you spend $500 within the first 90 days of opening the card.

However, tax rules may vary from person to person. Consider consulting a tax professional if you have questions regarding your personal tax situation.

Simon Zhen is a columnist and staff writer for MyBankTracker.com, where he covers banking, financial technology and savings rates.