There seems to be a lot of misunderstanding about CitiBank’s issuance of 1099-MISC. Many are confusing rebates with income. Many banks are offering sign-up bonuses for opening an account. CitiBank ran different promotions where they would give you 25,000 to 30,000 miles (AAMiles) or Points (CitiBank ThankYou program).

Income Vs Rebate

If you signed up for a bank account and parked your money in the account, you did not have to spend anything to earn the reward. This reward is then income.

If you had to meet a minimum spend to earn a reward, this is a rebate.

The important distinction is whether you have to spend money to earn the reward or not.

Issues to Clarify

Now, some bank sign-up bonuses require that you conduct some kind of spend such as making three debit transactions. This muddies the issue because there is a potential for the spend requirement to not exceed the bonus. When the spend exceeds the rebate (such as when you buy a refrigerator, washer, or dryer), it is very easy to see it as a rebate. What happens though, if your three debit transactions totaled only $10, but your sign-up bonus is $50. Then you have the issue where the bonus exceeded your total spend. It depends on how the IRS wants to handle it, but I would say if the customer spends beyond the bonus in debit transactions within the bonus eligibility period, then I would say there is no income. If the total spend does not exceed the bonus, then I would subtract total spend against the bonus to reach your income. For example, if the bonus is $50 but you spend only $10, then your income is $40. Since the IRS laws currently do not require reporting of anything below $600, it may be a moot point.

Points Valuation

The IRS also needs to fix what they allow businesses to valuate their points at. Why does CitiBank get to valuate 25,000 points at 2.5 cents per point? For example, if we use the 25,000 ThankYou points program, one can only cash out 25,000 points as a $175 cash check. So, if redemption costs CitiBank $175, shouldn’t the 1099-MISC also be $175? I am not sure on this point, but CitiBank can declare a 1099-MISC even if the income is under $600, it is just not required.