Do you pay taxes on bank bonuses?

A bank bonus is the one reward that arrives with a tax form. Knowing that before you chase it changes which offers are worth the effort.

Are bank account bonuses taxed?

Generally, yes, when the bonus is cash a bank credits to a deposit account. Banks generally report that cash as interest on Form 1099-INT. ² The form instructions tell a payer to include amounts of $10 or more paid or credited to the person's account, whether or not those amounts are designated as interest. ² Publication 550 says interest income generally is reported on Form 1099-INT, and that you report all interest income even if you do not receive the form. ³ The same publication says a noncash gift or service for making deposits or for opening an account in a savings institution may be reported as interest on Form 1099-INT. ³ Bankrate describes a cash bank-account bonus the same way: it is taxed like ordinary interest income, and a bonus over $10 is likely to arrive on Form 1099-INT or Form 1099-MISC. ⁴ This is a general description, not tax advice. A bonus an employer adds to wages is outside this page.

Why a spending reward is not the same payment

A credit card reward you earn by spending is generally treated as a rebate, not as bank interest. Publication 525 says a cash rebate you receive from a dealer or manufacturer of an item you buy is not income. ⁵ You do reduce your basis in the item by the rebate. ⁵ An IRS letter ruling treated a credit-card cash rebate as an adjustment to the purchase price of the items bought with the card, and not as gross income. ⁶ That letter was written for one taxpayer, so it does not decide every card program. The product line still holds in ordinary cases: a deposit bonus is generally interest, and a spending reward is generally a rebate.

Is a bank bonus taxable?

Yes, as interest. The IRS states that "most interest that you receive or that is credited to an account that you can withdraw from without penalty is taxable income in the year it becomes available to you". ¹ A cash bonus credited to your new checking account meets that description exactly: it is money the bank paid you for placing a deposit, and you can withdraw it.

Banks treat it the same way. The bonus appears with the account's ordinary interest on the year-end Form 1099-INT, and the offer terms usually say so in one line near the end.

When does the form arrive, and what if it does not?

The IRS says that "if you received payments of interest and/or tax-exempt interest of $10 or more, you should receive Copy B of Form 1099-INT or Form 1099-OID reporting those payments". ¹ Every bank bonus clears that threshold on its own, so expect the form, normally by the end of January.

If it does not arrive, nothing changes. The IRS is explicit that "you must report all taxable and tax-exempt interest on your federal income tax return, even if you don't receive a Form 1099-INT or Form 1099-OID". ¹ The posting entry in your account activity is the figure to use.

Which year does it belong to?

The year it was credited, because the IRS taxes interest "in the year it becomes available to you". ¹ A bonus qualified for in December and paid in January is January's income. That matters if you are timing offers around a year with unusually high or low income. The bonus has to post before it is income, so read can you close a bank account after the bonus before you treat a December qualification as this year's cash.

How much does it cost?

Interest is taxed as ordinary income at your marginal rate, plus state tax where it applies. A $300 bonus at a 22% federal marginal rate is about $66 of tax, leaving $234. A $200 bonus at 12% costs $24, leaving $176.

So two offers should be compared after tax, and the comparison is simple: multiply each bonus by one minus your marginal rate. The parked cash, the fee and the days committed are unchanged by tax; only the bonus shrinks. Run the numbers in the bank bonus tax calculator before you treat the bonus as take-home. Is a bank bonus worth it applies that after-tax figure to parked cash and committed days.

Why a credit card bonus is different

A credit card sign-up bonus that requires spending is generally treated as a rebate on the purchases, not as income, which is why card issuers do not issue a form for it. A bank bonus requires a deposit rather than a purchase, and money paid for a deposit is interest. The line between the two is what you had to do to earn it.

What to keep

• The offer page, with the date you read it, so the bonus amount and the conditions are on record.
• The account activity entry showing the bonus posting, with its date.
• The Form 1099-INT when it arrives, and the account's year-end statement if it does not.

The folder to build before January, including a reversal, is in how to document a bank bonus for taxes.

What this looks like in CardLab

CardLab's bonus tracker records the day each bonus posted, which is the tax-year fact, and the ROI figure on a published offer is stated before tax so you can apply your own rate. The offer's terms, read from the bank's own page, sit beside the figure with the date they were read.

Taxes and credit pulls are different costs of bonus chasing - opening accounts and credit score is a separate question from what this page covers, and does opening bank accounts hurt your credit answers it.