Citibank has sent out 1099 tax forms for 2011 to people who received over 24,000 points as an incentive for opening a checking or savings account.
Usually prizes, awards and the such, worth over $600, are reported to the IRS as miscellaneous income.
While the 1099’s were NOT sent out for reward points on credit cards, the recent mailings suggest cardholders might have to pay taxes on all their points sometime in the future, if and when the IRS changes its mind.
Citicard regards any promotion to open an account as a taxable “gift.”
A spokesperson said, “When a customer receives a gift for opening a bank account — whether cash, a toaster or airline miles — the value of that gift is generally treated as income and subject to reporting.”
The IRS currently views reward points on credit cards as a form of “rebate,” which is not considered income, but reduces the price the customer pays for his or her purchase.
As an example, when a customer opens a new Macy’s credit card, he or she gets up to $100 off their first bill on purchases made within 48 hours of opening the new account – the credit reduces the cost their initial statement.
However if Chase credits a new account holder 25,000 points, without even making a purchase, wouldn’t that be considered a gift since nothing was bought?
The IRS treats both promotions the same now as not being taxable.
Stay tuned folks, because the tax situation right now favors cardholders, but Congress and the IRS might want to plug this tax “loophole” in the future.