Capital One expands credit card benefits it claims are taxable, surprising some customers with 1099

Most people earn credit card rewards or use the built-in statement credits on their credit cards to save money…not paying a bigger tax bill.

Unfortunately, it looks like some Capital One cardholders are getting a surprise 1099 for using some of their credit card perks—such as statement credits available for subscription fees on programs like Global Entry.

ONE Judgment of the US Tax Court from 2021 saying that earning points or discounts from credit cards is not considered income, so what is going on here? Why is Capital One submitting a 1099 form, which is commonly used to report income for tax purposes?

Generally, there are some circumstances where you may receive a 1099 form to receive a bank account registration bonus, a bonus for referring a friend using a credit card, or to purchase cash equivalents such as a credit card. gifts and money orders.

For example, TPG reader Kevin Banh received a referral that he referred to others. “I referred 2 to CapOne (50k miles) but didn’t get any forms in 2022 for 2021. But referred 4 (100k miles) and got the form this year,” said Banh speak. That’s pretty standard since referral bonuses are treated as income rather than spending reductions.

The same applies to opening a Bask . bank mileage savings account to earn American Airlines AAdvantage miles. The rewards you will earn are considered interest income. So you’ll get a 1099 form because those are also not considered a spending rebate, which is generally not taxable.

However, what we are seeing from Capital One right now is new territory.

Travel expert Gary Leff at View from the Wing tell the story of one of his readers received 1099 from Capital One for goodwill, referral bonus and statement credit – an unusual combination.

Capital One now has the ability to treat statement credits and anniversary bonus points as gifts, which may be taxable and count towards annual reporting requirements. Traditionally, statement credits and rewards points have presumably been seen by banks as a discount on spending (including spending money on the card’s annual fee) – which the IRS does not consider taxable income. tax.

A spokesperson for Capital One issued the following statement:

Required reportable payments include certain credits or gifts given to customers including TSA Pre/Global Entry statement credits and preferential credits through customer service; reportable payments must equal or exceed a total of $600 within one year for a customer to be eligible for a 1099-MISC form.

The silver lining here, if any, is 1099 not sent by Capital One unless you have received $600 or more in the calendar year in the form of certain credits or gifts.

In addition, the value of welcome bonuses earned by signing up for a Capital One credit card and points earned from daily spending on cards do not fall into that category. So most cardholders will likely drop below that $600 threshold. However, customers who earn points by referring friends and family and using these credits may be most at risk of exceeding that threshold.

If you have questions about a 1099 or believe the value you received is not the same as the value listed on your 1099, consult your tax preparer.

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