Did you take advantage of bank account or credit card sign-up bonuses? Or, maybe you’ve been running around chasing the highest savings and CD rates. For the fear of getting in trouble with the IRS, here’s what should be reported during tax season.

One area of tax return preparation that stumps many taxpayers involves the interest, bonuses, and gifts received from banks and credit card companies. Many perks from these financial institutions have to be reported as income – affecting your tax liability.

Form 1099-INT

Form 1099-INT is the tax document issued by banks and payers of interest – copies are furnished to you and the IRS. Financial institutions are required to send out Form 1099-INT if they paid you $10 or more in interest.

But, even if you didn’t receive Form 1099-INT, you still have to report any taxable interest income for the year.

Annual Interest on CDs

Anyone who owns long term CDs may find it tricky when it comes to reporting interest on CDs. Although a CD may not reach maturity for several years, the bank may send you Form 1099-INT in every year that the CD is earning interest. You may not receive the the interest payout until after maturity, but you will be required to report interest earned.

The exception to reporting annual CD interest is if you own IRA CDs, where earnings will be reported according to the type of IRA.

Account Sign-Up Cash Bonuses

Many banking customers who opened a new bank or credit card account with a sign-up bonus offer will realize that they received Form 1099-INT for that amount of that bonus. If you jumped on the $100 cash bonus for opening a Chase checking account or the Discover More Card $100 cash back bonus, the bonuses are considered taxable interest income.

If your bank has a referral program (e.g., ING Direct) that pays you for completed referral sign-ups, the referral commission is also reported on Form 1099-INT.

On a side note, cash back and reward points earned on credit and debit card purchases are not considered taxable interest.

Non-cash Gifts and Services

The days of banks offering crock pots and toasters for new accounts are behind us as tech gadgets begin attracting more allure. Even back then, these noncash gifts could be reported to the IRS as taxable interest income.

According to IRS Publication 550 Investment Income and Expenses:

“If you receive noncash gifts or services for making deposits or for opening an account in a savings institution, you may have to report the value as interest.

For deposits of less than $5,000, gift or services valued at more than $10 must be reported as interest. For deposits of $5,000 or more, gift or services valued at more than $20 must be reported as interest. The value is determined by the cost to the financial institution.”

For example, customers who signed up for the recent Valentine’s Day iPad Bundle promotion from iGoBanking.com will be reporting over $800 in taxable interest income for that gift package.

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  • Airman1269

    I had opened a checking account in november with first niagra bank, they were offering a 100 dollar incentive to do so. 60 of the 100 dollars was put in my checking account in december and the remaining 40 in january of 2012. I have not recieved any 1099 form from them. I have tried to find out what kind of form (1099-???) so i can file my taxes as i am in need of my refund.The bank insists they mailed them out on the 31st of january… but honestly what takes over a week to get in the mail. I called and asked what they sent and they said a 1099.. but what kind they couldnt answer.. Is there a way to find out what kind of form 1099 they had supposedly sent??

    • Most banks, and this is the case for banks such as Bank of America, Chase and Huntington, will issue Form 1099-INT for a cash bonus when opening a checking account.

      If a gift (not cash) was the bonus for opening an account, Form 1099-MISC is usually sent out.

      The surefire ways to confirm the type of Form 1099 would be to have the form in front of your or by contacting the bank. You should call them again and ask another agent to answer your question. Or, consult a tax professional.