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.

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.

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.

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.

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.