Posted by William Charles on February 4, 2019
Deals

Published on February 4th, 2019 | by William Charles

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Chase Also Sending Out 1099s For Referral Bonuses (1¢ Per Point)

Update 2/4/19: After looking over more datapoints it seems that Chase is only issuing 1099 forms if cardholders received $600 or more in referrals. Some people originally said they were issued forms for referrals under $600 but after talking with them they received under $600 on a specific card, but more than $600 in total. If anybody received a 1099 form and received under $600/60,000 points in referrals in total then please let us know.

A few days ago we reported that American Express was sending out 1099 forms for referral bonuses. It seems like they aren’t the only issuer doing this, with readers reporting also receiving 1099 forms from Chase for referral bonuses.

Chase is valuing all points at 1¢ for the purposes of these forms. Note: Only referral bonuses are getting 1099s, not signup bonuses or any other sort of bonus, regardless of how it was redeemed. These forms are being sent out even if you did not receive $600 worth of referrals ($600 is the threshold where financial institutions are required to send out the form, but they can send out forms if the amount is under this and you’re supposed to self report anyway).

This isn’t the first time Chase has done this, in 2017 they also sent out a 1099 only to later retract it. The fact they have sent out this form again and the fact American Express has done the same leads me to believe they have received a private letter ruling from the IRS.

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Ted
Ted

Private letter ruling …..The DOC is also a CPA? 😉

LC
LC

big thread on reddit on this.

Lisa
Lisa

Ooh link…

JV
JV

Aren’t private letter rulings public via search?

MoreSun
MoreSun

Yes. But good luck with the search engine.

MeanMeosh

Tax preparer here. I did a pretty exhaustive search of the PLR database and couldn’t find anything issued anytime between 2017 and now which addresses this. I think the more likely cause is an audit of either Chase or Amex, or both. The big corporations are basically under continuous IRS audit, unlike individuals and small businesses. My guess is the banks claimed a deduction for referral bonuses issued, and the IRS questioned them on it. The general rule for deductions where something is paid to an individual is that the taxpayer can’t deduct unless the individual reports income. Easiest way to force that is to 1099 the individual. The IRS might have told them they’re disallowing their deductions unless they start issuing 1099s going forward.

Mike
Mike

VERY helpful comment. Thanks for posting this.

LC
LC

this i understand and wont fight. Chase literally lets ANYONE redeem the UR points for 1 cent per point, which is the fair market value. However, if someone got a bunch of Marriott referrals id be pretty pissed at the 1 cpp valuation. If the IRS came to conclusion this should be taxed then so be it.

Guess its time to move on and stop focusing on referrals so much and more on card sign ups and MS.

LC
LC

Also, this isnt so bad… its going to make our overall income higher so we can get approved for more credit cards. Infinite cycle.

CM

Yes, totally understandable for UR referrals. But Marriott Rewards are nowhere near 1cpp. I realistically value Marriott Rewards at about 0.2cpp to 0.4cpp at most. In fact, even the retail listing price is often less than 1cpp. In fact, even TPG values them at 0.9cpp, and TPG goes out of their way to find the most expensive properties that provide the best points value, that few churners would ever pay cash for.

The cheapest option for a one night stay at most metros with Marriott is Category 3 at 17.5k (there’s often only one Category 2 12.5 hotel per the whole metro, even in relatively cheap CoL areas). This is comparable to about $55 after tax price at Priceline NYOP. Which provides a valuation of around 0.3cpp.

Blue
Blue

You can’t compare a refundable booking that qualifies for elite credit and status with a Priceline hidden non-refundable booking.

Lrdx
Lrdx

When you don’t care about the useless Marriott status, yes, you can.

Chuck

It’s still a bit sticky, though, IMO: you’re thinking as an experienced user who knows you can get at least 1 CPP, but what about your typical Chase customer who uses their points on Amazon for .7 CPP? And what about the absentminded fellow who closes his card and forfeits a bunch of points?

The only truly fair system is what Citi does which sends out a 1099 based on points actually redeemed.

Celia
Celia

Going by redeemed value in this case wouldn’t really work. Since it’s only for referral bonuses, not having to make a purchase to receive, It is considered taxable by the IRS. But theyre treating ongoing points earned not taxable. Being all in one account, how do you determine the difference between which points are redeemed?

If they’re going to tax referral bonuses, they should give those bonuses in cash as statement credits. Last thing I want to see is them looking at taxing when redeeming and thinking it’s easier to just tax all UR points across the board.

Snorlax
Snorlax

The problem with taxing earned points vs redeemed points is that the UR TOS say that the points belong to Chase, not the cardholder; they dole them out basically at their sole discretion; they are not transferable; they have no cash value; and you can lose them without recourse for a variety of reasons.

So it’s totally unfair to pay taxes on something that’s not really yours; you should only pay taxes when you realize the benefit (cash them out). Only then do you reap financial benefit from them.

I don’t think it would be difficult for chase to mark X point of the total as “referral points.” If you got 10,000 in referral points and later redeem points for a flight that costs 40,000 points with a cash value of $1,000, then you would be taxed on $250, 25% of the points came from referrals, so you should be taxed on the value of 25% of the flight.

whodidntante
whodidntante

I don’t know any human who enjoys paying tax. But I agree that a referral bonus is most likely taxable income. And if it is, the referral bonus would be taxable whether a 1099 is issued or not. There is no argument that a referral bonus is a rebate that I can see.

LC
LC

the only thing i can see… is if you paid an annual fee to keep that card the NEXT year specifically for referrals. i could see an instance where you might argue that part of that annual fee is deductible, but is it really worth it at that point?

Dylan
Dylan

It IS worth trying to deduct the AF from your 1099 because if you had something like the platinum card and only got a couple of referrals (like me), you can deduct your AF as a business expense and thus not pay any taxes.

Ann
Ann

Except you can’t deduct ‘business expenses’ without filing a Schedule C for this income. I see in another of your comments that you do, but many people probably don’t, just put it under ‘other income’.

Calling it a business as long as you actually report a profit some years; you’ll get reclassified as a hobby (meaning nondeductible expenses) if you keep cancelling out all your reported income with fee deductions for several years in a row.

calwatch
calwatch

I have enough income from random consulting and Lyft to always show a profit, and I always pay SE tax and file on Schedule C rather than calling it a hobby. Note that you can’t deduct any business expenses incurred for the hobby legally since miscellaneous deductions were eliminated in TCJA.

Frank

the problem is valuation — chase at 1cpp is fine but MR at 1cpp is criminal. If they think it’s worth that then they should have to buy it back at that price

Zorn
Zorn

Frank Have you met my good friend Charles Schwab? He’d like a word with you

Zalmy

Ha. I think he means Marriott but I’m not sure

Dylan
Dylan

I agree, I hate paying taxes as much as the next guy but yes, referral bonuses can be easily argued to be taxable income.

This effectively means you worked as a self-employed contractor for amex and/or chase from soliciting referral offers.

However at the same time because you are now a sole proprietor, you should able to deduct any expenses required to run your referral “business”. This includes things like your cards annual fee.

Points are also much more like a security in their nature, where they should not be taxed until time of redemption because they can vary wildly in value. But if the IRS is going to require me to pay taxes today, I am going to find a way to pay as few taxes as I legally owe.

I received a 1099-MISC for $300 for two amex self-referrals. I am going to legally pay zero taxes by doing the following:

1. Dispute my 1099 by showing that the points are only redeemable for 0.6cpp for cash value. This can easily be shown by logging into the amex website and showing they can be redeemed for 0.6cpp. If the government wants me to pay taxes on these for their cash value, I am going to pay taxes on the points for the value I can easily redeem them for cash, and this is 0.6cpp.

2. I self-referred from my biz platinum card. the annual fee was $550. Because of this, I will deduct the annual fee since it was a necessary cost in order to hold said card and earn the referrals.

In total, this means my “business” has actually lost $210 on paper. Meaning that now only do I not have to pay taxes, I also get to offset $210 from my standard income taxes as a tax deduction.

Hmm, looks like these referral bonuses were a good thing after all.

My problem with taxing points is it would be like if you worked for a company and they paid you in company stocks. You are not supposed to pay taxes on a stock until it is sold. This is because a stock is not something that can be used to buy and sell products in the economy. As such you should only have to pay taxes on the stock when you have realized a gain from selling such stock, not at the time of receiving the stock.

Ann
Ann

“My problem with taxing points is it would be like if you worked for a company and they paid you in company stocks. You are not supposed to pay taxes on a stock until it is sold. This is because a stock is not something that can be used to buy and sell products in the economy. As such you should only have to pay taxes on the stock when you have realized a gain from selling such stock, not at the time of receiving the stock.”

Company stock options get taxed, usually like W2 income, when you use them to buy stock at less than the current market price. Then if you later sell that stock for an additional profit, that gain gets taxed separately as capital gains.

Gene
Gene

how do you plan to dispute this with the IRS please? filing taxes electronically, but then mailing a paper letter of explanation to the IRS hoping they will read it? thanks

qmc
qmc

Agree with Ann, you can be taxed on stocks provided as part of your compensation. RSUs are taxed when the shares are delivered (vested). https://turbotax.intuit.com/tax-tips/investments-and-taxes/how-to-report-rsus-or-stock-grants-on-your-tax-return/L55yZieu0

Also, ISOs are taxed when exercised, not sold, and can also make you liable for AMT.

“In total, this means my “business” has actually lost $210 on paper. Meaning that now only do I not have to pay taxes, I also get to offset $210 from my standard income taxes as a tax deduction.”

The 1099 and referral bonus do not make you any more eligible to deduct the $550. Either you have a business, for which the AF is from a card used solely for business purposes and is deductible, or you don’t. I am not a tax professional, but I would not suggest to anyone that this is “legally paying zero taxes” and is going to offset $210 of your standard income.

bullfrog23414
bullfrog23414

There are even times when restricted stock can be taxable to the individual before it even becomes unrestricted, which means that it can’t even be sold to pay the taxes due. This happens if an individual is “retirement eligible” meaning that they are guaranteed to vest in the stock grant even if they leave the company (so the IRS says it is compensation for work already performed vs compensation for future work and it becomes immediately taxable). It gets pretty hairy when people have to pay tax on Illiquid compensation (kind of like getting taxed on Marriott Reward points). Yes, I am a CPA.

NBG
NBG

What gives that IRS/banks won’t send 1099 for regular rewards points?. They can do so anytime. But, what pisses me off/shady is the fact IRS/banks do this without forewarning/language in the terms. Any tax changes/implications has to be communicated before and not a surprise attack. If they want to do this then go and back tax prior years and see the outrage.

Ted
Ted

Rewards on spending are consider rebates therefore not taxable income.
Under the T&C for the referral, they did disclosure 1099s might be issued.

Dan
Dan

I never even get 1099 for checking bonuses from chase…

T
T

Those usually should be under tax document in your online account after January.

Emporio
Emporio

You should enter bank bonuses without forms as 1099 MISC on your taxes as it constitutes earned income

Alexis
Alexis

Bank bonuses should be entered as 1099-INT not 1099-MISC

Emporio
Emporio

If you have a 1099 INT for a bank bonus then absolutely enter it as a 1099 INT. But the IRS matches your 1099 forms to the amount entered on your taxes so to make it clear to the IRS you didn’t receive a 1099, it’s best to report bank bonuses without 1099s as “other reportable income” aka Miscellaneous Income.

Ann
Ann

At least in H&R block desktop version (other programs may vary), there is also a place to specifically enter bank interest without a 1099-INT. The IRS doesn’t have any problem with you reporting more income than you received 1099s for, in any category; it’s only a problem if you report *less* than your 1099s add up to.

Matt P
Matt P

You should enter it as INT because that’s what it is: interest income. You do not need to get a 1099 to enter the information, the instructions make that very clear.

Lrdx
Lrdx

There are no separate fields for 1099-MISC or -INT on the tax return.. Tax return softwares ask it separately, but that’s just their thing.

Ann
Ann

There are actually separate fields, if you have enough 1099-INT and/or 1099-DIV income to trigger a Schedule B. So it wants all the details just in case. https://turbotax.intuit.com/tax-tips/investments-and-taxes/what-is-a-schedule-b-irs-form/L9G2RijlF

Zalmy

They are very different, with different ramifications. 1099-INT is passive income, 1099-MISC can be earned income

Betelgeuse
Betelgeuse

So 1099-MISC is subject to SS tax?

Zalmy

As far as I know it can be, yes. Disclaimer: I am not a CPA (although my brother is). NEVER take tax advice from a stranger on the internet 😉

qmc
qmc

Not a tax professional, but It Depends ™ (seems to be on whether they are “like wages” or if you got it from winning a contest prize.

Lrdx
Lrdx

If it’s for self-employment income, yes. Not these credit card referrals (unless you are in the business of sending out credit card referrals, like anyone on boardingarea..)

Luke
Luke

Post says these are being sent for totals under $600, but has anyone seen any DPs for 1099s under $600? Chase seems to be showing all accounts on one 1099 and Amex is doing them separately, but in both cases they total over $600. Curious if anyone has seen evidence to the contrary.

debiTnm
debiTnm

I got one for $550, which is all I earned in 2018 on Amex Gold

debiTnm
debiTnm

For which Chase accounts?? Just UR earning accounts or all?? Sheesh :o(

MoreSun
MoreSun

All

fST
fST

This is something that just started this year it seems right? I don’t remember hearing about this before. I wonder what prompted this change, if this is in fact the first year doing this.

ETA: Whoops didn’t read the last paragraph! Nevermind!

Ann
Ann

They sent some out last year but then retracted them.

lvla
lvla

Getting 1099s for referral bonus…I guess we can claim credit card annual fees as business expenses then…

Dylan
Dylan

Yep, you should be able to find several ways to potentially deduct your tax owed to zero, especially if you go to the IRS and value your MR points at 0.6cpp while farctoring in the AF for something like the biz platinum.

Kuso29
Kuso29

AMEX putting a value of 1 CPP on MR is incorrect in that you can only cash them out at 0.6 CPP, they should put it like that unless they actually allow us to cash it out at the rate they are buying off of the 1099.

Lc
Lc

Agree. I’m arguing that with amex. Chase – can’t argue 1cpp with UR that’s fair.

Dom
Dom

I had 1 referral on a Sapphire Preferred last year and didn’t get a 1099. I don’t have anything in my online tax documents either.

Betelgeuse
Betelgeuse

I got the same referral bonus but only received 1099int for checking bonus.

YRK
YRK

Havent received any 1099 in mail nor in tax documents yet though I only got one (100$) successful referral bonus in 2018.

Jay.
Jay.

Did chase send 1099 for cobrand card? Like southwest, marriott card?

Brian
Brian

I just got one for Marriott Premier today. oof.

Dylan
Dylan

Are these referral bonuses related to some change in the tax code?

Also, how is it they can be taxed if the terms and conditions on both amex and chase’s website say they are the ones who own the points even if points are in your account? What would happen if chase or amex clawed back the points or closed your accounts? Would you now be left On that case with no points AND a tax bill? The issuer should only tax you when the points are redeemed.

Taxing points is really not cut and dry, especially amex MR points. They can be worth wildly different values depending on how they are used, so shouldnt we only have to pay the cash value of the bonuses upon redemption?

Points arent like winning a car or property where the market value can easily be shown by comparing prices. Taxing points is more like trying to tax the value of some comoddity gold, but based on the last 20 years of price changes. You cant, since gold had flucuated in price massively.

When I pay my taxes on my MR and UR points, I am going to file an amended 1099 for my MR points saying they are only worth 0.6cpp since that it what they can easily be redeemed for cash. we shouldnt even have to pay taxes on these points at all until they are redeemed.

Snorlax
Snorlax

If you win a car you can sell it the next day. If you “win” Chase URs you can’t sell them (they are “non-transferable”), Chase may buy them back from you (at a low rate) but Chase isn’t required to, they can end “cash redemption” tomorrow if they felt like it. Also if I won a car and died tomorrow I could pass the car to my heirs, UR points die with you.

Certainly a hairy topic.

H XU
H XU

correct me if I am wrong, I think I have one paradox here:

If the referral points (no matter UR, MR, mileage, hotel) are treated as taxable income, these points should be at my own discretion, which means I can trade, sell to anyone I wish as private property.

However, all the point program prohibit from selling or bartering.

Also, the hotel, mileage point can expire, but for what sake your money would expire?

Dylan
Dylan

hmm, now if we can just get enough churners together we can get the courts to allow us to sell our points.

VL
VL

That would probably effectively kill the programs. As however you look at the banks and hotels bank on the fact that some if not most of those points die unredeemed. .. such change would result in much higher redemption %, and would cost the programs more, which in its turn result in huge program devaluation. Everybody looses. . When now people who do not care about the points loose.

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