Quick Tip: Differences Between Bank and Credit Card Sign-up Bonuses

Just a quick tip that a reader brought up… when you receive a “bonus” from a bank, it is usually going to be reported as taxable interest income to the IRS via a 1099-INT form. Since such interest is taxed as ordinary income, you should remember that you will probably owe income tax on the bonus amount multiplied by your marginal tax rate (2010). After personal exemptions and standard deductions, students or other people with lower incomes might find that they don’t owe tax anyway, but it’s still worth noting.

Another way that this can get messy is if the bank offers an item like an mp3 player, and reports the full retail value while the actual market price is much lower. Let’s say they give you an iPod that you can find for $200 but mark it as worth $300. If you’re in the 28% tax bracket, you’ll be paying $84 in taxes for that “free” iPod. Still a good deal, but only if you would really pay that much for it! (Example: iPod Touch from KeyBank.)

However, incentives from a credit card sign-up are usually non-taxable. They don’t report any income on 1099-INTs, and due to a IRS private-letter ruling, tax experts tend to view the bonuses as a rebate on the purchases you make on the cards. (Example: $500 cash bonus from credit cards.)

[Insert “The More You Know” theme song…]


  1. I realized this too, not coincidentally around mid-April. A word of caution on the graphic though;
    Knowledge = Power and
    Power Corrupts
    You are participating in a pro-corruption campaign. Careful with that.

  2. I called my bank, Wells Fargo, and they said that they do not report this as income.

  3. @Tony – Which promotion, and for what size bonus? Out of all the bank bonuses I’ve done, only two did not report it as income on a 1099, and that was back in 2005 or earlier.

  4. @Jonathan – I currently have a Wells Fargo Rewards Card. It is nothing special but they don’t have reward limits. I know cards out there where you need to spend a certain min/max amount before you earn full point per dollar spent. Also the rewards gift cards are mostly 1 for 1 unlike many other rewards programs. ie. I can get a $15 Amazon GC for 1500 pts.

  5. @Tony – Ah, I thought you were talking about a bank bonus promotion. Your experience then matches mine, that credit cards don’t report rewards as income.

  6. Jonathan, you wrote, “…they don’t owe tax anyway, but it’s still worth nothing” but I suspect you meant “it’s still worth noting.” Otherwise if it was worth nothing, I wouldn’t bother trying out this technique! =]

  7. @Kenneth – Fixed 😉

  8. Lets say a person is enrolled in a ThankYouNetwork via Citicards bonus points, and they receive points to get gift cards for gas and retail purchases (i.e Best Buy gift cards) , does that need to be reported?

  9. @sa – Nope. not under what the IRS private ruling letter says. I don’t.


  1. […] the form of a cash, an item of value, and so on. The problem is that you need to be careful because signup bonus from banks are usually taxable whereas those from credit cards aren’t. Not only that, but the taxes are calculated on the retail value and not the actual market price, […]

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