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A reader shared with me that they received an IRS 1099 form from their use of a Capital One credit card and was trying to make sense of it.
He spoke with several people at Capital One, and came away realizing that this was triggered because he had received more than $600 in ‘income’ from them in the form of statement credits, goodwill points, and referral bonuses. For instance, he’d gotten 10,000 points as an apology when their system to transfer points to miles wasn’t working, and referred three or four friends to get the card.
What was odd is that he reported that statement credits were included in his 1099 amount. So I reached out to Capital One to understand this better.
- Referral bonuses are income. That makes sense to me. You’re basically being paid to market the card to your friends.
- Statement credits, though, are rebates which isn’t usually taxable.
- And I’ve never had a bank report apology points compensating me for a loss or disservice.
A Capital One spokesperson shared,
Required reportable payments include certain credits or gifts given to customers including the TSA Pre/Global Entry statement credit and courtesy credits via customer servicing; reportable payments must equal or exceed a total of $600 within a year for a customer to be eligible to receive the 1099-MISC form.
Capital One isn’t actually telling you what is taxable. They are telling the IRS what they gave you. And their lawyers seem to think this is required, even though it’s more aggressive reporting than I’ve seen by major banks in the industry.
When you receive something that’s taxable, you need to include it on your income tax filing whether you receive a 1099 or not. Whether or not you receive a 1099 form isn’t actually relevant to your tax liability!
And just because you receive a 1099 form for something doesn’t make it taxable, either. The 1099 tells the IRS that you’ve received something from a business, and it tells you the business has told the IRS about it. 1099s can be wrong! And you can dispute them.
In any case, Capital One’s position that TSA PreCheck or Global Entry statement credits need to be included in 1099 reporting, when you’ve received enough other benefits from them to trigger a 1099 ($600+ in a year), is unique in the industry as far as I am aware. Nonetheless, their decision to tell the IRS about it isn’t what makes it taxable. It either is or it isn’t. But most folks wouldn’t think to report this on their taxes without it being included in a 1099, and wouldn’t dispute it whether or not it’s taxable once it’s reported.
Fortunately most Capital One customers do not receive $600 or more in a calendar year in credits from the bank (including referral credits, apology points), and thus won’t face this issue. Just receive a travel credit and a Global Entry statement credit? You’ll be below the reporting threshold.
This is a very aggressive interpretation by Capital One. Also, odd since the $600 reporting level for PayPal, Venmo, etc was pushed a year (currently $20,000 as I recall) and not sure the $600 limit even applies for 2022 taxes in this case. That being said Capital One decided to err on the side of caution. Agree completely with you that just because you get a 1099 it doesn’t mean it is taxable. However, if you don’t include it on your taxes and somehow designate it as non-taxable income (there are options to do so but need to most likely either have an accountant handle it or use a program like Turbotax and know enough to understand the exclusions) there will be a disconnect between your reported income on your tax form and what was reported to the IRS. That could result in, at a minimum, in a letter from the IRS seeking taxes and interest on the amount not included but could potentially trigger an audit and possibly penalties. While people shouldn’t blindly pay tax on income reported on a 1099 such as this in many ways ignoring it is even worse. Glad I don’t have a Capital One card and my banks don’t take this viewpoint.
An IRS audit is way more costly than a few hotel points. I’ll be avoiding Capital One has long as they’re doing this.
@AC – the issue with Paypal and their reporting limit is that they’re effectively a pass through and not the payor, different rules apply. Capital One is reporting their compensation to you, which falls under different rules.
Based on this reporting, I would love to hear Capital One’s reasoning for not sending out 1099s for bonus points and signup bonuses.
Time to Dump Cap-One into the trash can.
I’m paying a credit card fee to get these “credits.” If they want to play this game then credits I receive need to be offset by the card fee itself. Outrageous.
It’s long overdue that the $600 threshold trigger limit for 1099-MISC filings should be hiked to $1000+, but the government doesn’t want to risk further tax revenue leak from people underreporting income when 1099s have been a gold mine for the treasury and even law enforcement action. Just like the government keeps the $3,000 and $10,000 reporting threshold triggers, so goes with the $600 threshold trigger.
Great follow up with Capital One. Thanks for the good info Gary!
Would this apply to travel expesnes that are “deleted” by points? Been planning to replace Marriott cards with C1 but this could change things.
@Jigar – no
It’s really hard to like Capital One if they don’t disclose this information with a warning in advance. They should find another lawyer.
Any reports of the $300 Capital One Travel credit from the Venture X card being included?
On the one hand, it seems directly analogous to the Global Entry/PreCheck credit; on the other hand, maybe Capital One’s lawyers can argue it’s more straightforwardly a purchase rebate when Capital One owns the vendor whose products are being rebated.
Bye Capital One. It was a good run of 8 years but I don’t do business with companies that surreptitiously slip the tip in without asking me first.
Many of the commenters here seem to not understand the point that Capital One doesn’t decide what’s taxable and what’s not, nor does receiving a 1099 necessarily mean that something is taxable, or even that you have to report something on your 1040.
What you report to the IRS, or don’t report, is ultimately a decision for you and/or your accountant/lawyer to make.
@RT I received a 1099 for exactly $600 and I think it was broken down like this:
$300 travel credit
$200 (20,000 pts) referral
$100 GE credit
$395 cost/fee charged
10000 points/$100 received
$100 TSA credit
= $195 tax loss
Profit
The Chase Sapphire cards have the TSA Precheck reimbursement (up to $100) plus issue statement credits for the first $300 in travel costs putting the total available credits at $400. I’m just waiting until Congress creates armageddon by making credit card, airline and hotel points taxable.
Well, I guess I’m never referring anyone for the Venture X given that doing so would trigger a 1099. Sure, maybe I don’t have to count that as income even if I get a 1099, but I’d rather forego 20k points than deal with the hassle of adding this to my accountant’s to do list.
I got a 1099 for $1078…
2 travel credits, 2 referrals, and a TSA pre… travel credits DO count toward this… don’t get them in the same year
Capital One
What’s in your wallet?
A 1099
BWAHAHAHAHA
@Joe, it’s not a tax loss since the credit card fee is not deductible for individuals (it may be deductible for business though). What would make for sense for the CC companies to do, at least for tax reporting purposes, is to lower the annual fee by netting the travel benefits against it.
It’s cute to think that credit card rewards such as opening bonus, referral bonus are not taxable. Be educated.
Reason 1001 not to do business with Capital One. One of the most dishonest banks in America. Their Terms of Service clearly state that the bonus points you earn belong to them. The IRS considers points and cash back bonuses to be a rebate of the purchase price. As a result, no tax owed.
I feel like Capital One is for common people.
A reason to be okay with their denial
I’m now out of the country most of the time, so the VX is my go to daily non-bonus spending card. Any worthwhile alternatives?
If it were taxable, then I’m a contractor of a Capitol One and taking a loss due to my work on earning bonuses and cash back
How do you find your bonuses to check whether that’s the majority of your 1099?
I know this isnt relevant persay, but does that mean the 75,000 offer when I spend 4K in 3 months, can be considered taxable?
I received a 1099 for $250 they gave me for making a direct deposit within a certain amount of time upon opening a checking account with them.
@Nicole – bank account bonus offers are a different matter, that’s not ‘nonemployee compensation’ it’s a return on a financial account..
Individuals should request from Capital One a schedule of income comprising the 1099. Provide that schedule to your tax return preparer. Tell your tax return preparer to EXCLUDE income allocated to statement credits associated with a purchase (such as TSA pre-check credit or dining credit, etc.) and to include a footnote on your tax return references their non-taxable character under TC Memo 2021-23 (Docket Number 13080-17). This is called a “disclosed position.” If you’re right, you’ve saved yourself the tax. If you’re wrong and tax is due, the disclosed position will allow you to avoid a penalty on the underpayment.
@Lee – you can do what you want and I’m not telling you all reported 1099 income is taxable. However. If you don’t report it and then reconcile on your return any amounts that are non-taxable expect, at a minimum, a letter from the IRS (likely demanding payment and interest). Like it or not (and I’m not saying I do) once a company sends that 1099 to the IRS (they get the info just like you) their computers try to match it to returns and, at a minimum, a letter is generated if they don’t match.
Glad I don’t have a Capital 1 card for for those that do this is a serious matter and you can’t just decide you don’t (or shouldn’t) to pay taxes on the income reported by Capital 1. Once that 1099 is created the horse is out of the barn.
So is the 3.5 percent I pay the merchant tax deductable
@Gary – Thank you for replying.