American Express 1099’ing Referral Bonuses

Apparently American Express is sending out 1099s to people who referred customers to their credit cards.

American Express is probably right to do this. The points are compensation for helping them acquire a customer, rather than a rebate on your card activity.

And of course whether you receive a 1099 doesn’t speak to whether you owe tax. It’s informational reporting from American Express to the IRS. If they pay taxable income but don’t report it, the income is still taxable. Here they’ve now determined, it seems, that the points are taxable and therefore reportable.

Here’s how Amex appears to be valuing the points they awarded to you:

These Marriott and Hilton points are way overvalued. In fact I’ve spoken with American Express executives who in conversation with me have valued Marriott points at 75 basis points. Hilton regularly sells points for half of what American Express is reporting — highly suggestive that the market value is lower (since it’s a price at which willing buyers and sellers transact).

Just because Aemrican Express tells the IRS that Hilton points are worth 1.25 cents apiece doesn’t mean that’s the revenue on which you owe tax. You can dispute the value and pay less tax as a result. Here’s the process to do it.

Bizarrely consumers successfully settled a class action suit against Citi for failing to adequately disclose that they were going to send out 1099 forms reporting bonuses to the IRS. Given how surprising this is I wonder if an enterprising attorney will try to repeat the trick. However there’s fine print on the referral site saying they’ll do this, which is probably adequate disclosure.

Update: American Express is valuing Hilton points at $0.0067 cents apiece — still too high, but not insane.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. @Gary, what about the 100,000 point bonus I received from Amex for (self referring) as a sign up bonus for an Amex Platinum Business Card? Is it a matter of time before we start getting 1099’s for signup bonuses too?

  2. I just got a 1099 for the 50,000 ultimate reward points received when opening a Chase checking account. It was supposed to be just for Chase Private Client, but my banker secured it for opening a different type. They valued them at $500.

  3. CPA Here with 30 yrs experience.

    First a individual is on the cash basis of accounting for Federal income tax purposes. So the taxpayer pays income tax on when they receive the cash or the Fair Market value of something.

    The question is what is the Fair Market Value of the points? Do they expire? Does the taxpayer have the exclusive rights to the points? Can the company that awards the points recall them? (Remember Northwest revoking Lounge access ?) Are they transferrable to another party? Can they be willed to a spouse, child or other person?

    Based on the above I would argue they are worth ZERO until used, like deferred employee Stock options.

    Then the next question is the Value.
    Is the value based on when redeemed? is the value based on what it is redeemed for? 25,000 points for a flight to Florida is about the same as a Southwest $200 flight. 25,000 points at IHG is about the same as a $70 night hotel at a Holiday inn Express in rural Kentucky.

    Most IRS agents have instructions about what to value items at. Per the IRC tax regulations at this time they have only said they are worth ZERO.

    I do not think anyone of these companies are going to lobby to say they are worth more because they would the have to argue that they do not become valueless, like United that expire after 18 months. Or that the IRS could come out and actually regulate them

  4. TomRI,
    I would argue that ultimate reward points are specifically different than many of the others, because they have a clearly defined cash value. I could always turn in 50,000 ultimate reward points for $500 in cash. Therefore, they are worth $500. I choose to use them differently and get more value out of them, but that’s a clearly pegged value.

  5. Jennifer what actual cash value do you get for them? Overpriced merchandise? Show me the Money !

    If you get a 1099-MISC for $500 and the points expire after you paid $125 in federal taxes and $50 in state taxes on them, will you be happy?

  6. I received an IRS form 1099 for $375 for the 75,000 Delta Airlines bonus miles I received for meeting the spend requirement, valuing them at 1/2 cent/mile. I have written a protest letter to Amex at the address on the 1099. Never has Amex or any other credit card issuer issued a 1099 for bonus miles for meeting a spend requirement.

    They also sent a 1099 for Membership Rewards point I earned for referrals to cards that earn MR points. It values those points at 1 cent/mile. Yet those points convert to Delta miles at 1,000:1,000. Thus they are saying definitively that the Membership Rewards points have the same value as Delta miles, or ½ cent per point. Also, the only way I can find to convert the points to anything resembling cash is to use them to buy American Express gift cards. They sell them at a price of ½ cent per point, thus saying definitively that the value of a point is ½ cent.

    I encourage everyone to protest to American Express to the address on the 1099.

  7. TomRI,
    I can always take one cent per point as a statement credit or as a cash gift card, so it’s hard to argue that the value is anything more or less than $0.01 per point. In any case, having received a 1099, how would you suggest that we argue that the value is anything different?

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