Capital One expands credit card benefits it deems taxable, surprises some customers with 1099s
Most people earn credit card rewards or use built-in statement credits on their credit cards to save money ... not rack up a bigger tax bill.
Unfortunately, it seems some Capital One cardholders are receiving unexpected 1099s for using some of their credit card perks — such as statement credits available for application fees on programs like Global Entry.
A U.S. Tax Court ruling from 2021 says that earning points or rebates from a credit card isn't considered income, so what's happening here? Why is Capital One sending out 1099 forms, which are typically used to report income for tax purposes?
Normally, there are some cases where you might receive a 1099 form for bank account sign-up bonuses, bonuses for referring a friend to a credit card or for buying cash equivalents like gift cards and money orders.
For example, TPG reader Kevin Banh got one for referrals he made to others. "I referred 2 for CapOne (50k miles) but didn't get any forms in 2022 for 2021. But referred 4 (100k miles) and got a form this year," Banh said. That's pretty standard since referral bonuses are considered income instead of a rebate on spending.
The same applies to opening a Bask Bank Mileage Savings Account to earn American Airlines AAdvantage miles. The rewards you'll earn are considered interest income. So, you'll receive a 1099 form as these are also not seen as rebates on spending, which are generally not taxable.
What we are seeing from Capital One now, however, is new territory.
Travel expert Gary Leff at View from the Wing told the story of one of his readers who got a 1099 from Capital One for goodwill points, referral bonuses and statement credits — an unusual combination.
Capital One is now potentially treating statement credits and anniversary bonus points as gifts, which can be taxable and count toward annual reporting requirements. Traditionally, statement credits and bonus points have presumably been treated by the banks as rebates on spending (including spending the money for the card's annual fee) — which the IRS does not view as taxable income.
A spokesperson for Capital One provided the following statement:
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.
The silver lining here, if there is one, is that a 1099 is not sent by Capital One unless you've received $600 or more in the calendar year in the form of certain credits or gifts.
Additionally, the value of the welcome bonuses you earn by signing up for Capital One credit cards and points earned from everyday spending on the card do not fall into that category. So, most cardholders will likely fall below that $600 threshold. However, customers who earn points by referring friends and family and use these credits may be most at risk of going over that threshold.
If you have questions about a 1099, or believe that the value you received isn't the same as what is listed on your 1099, consult your tax preparer.
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Sometimes it's worth a large investment to reap the benefits of a great credit card. That's exactly the case with the Amex Platinum card. In exchange for the annual fee, you'll unlock access to the Amex Membership Rewards program that let you access airline and hotel transfer partners, along with new lifestyle and travel credits. This card is also incredibly rewarding for travel purchases, helping you rack up a ton of Membership Rewards points for your next award trip.Pros
- The current welcome offer on this card is quite lucrative. TPG values it at $1,600.
- This card comes with a long list of benefits, including access to Centurion Lounges, complimentary elite status with Hilton and Marriott, at least $500 in assorted annual statement credits and so much more. (Enrollment required for select benefits.)
- The Amex Platinum comes with access to a premium concierge service that can help you with everything from booking hard-to-get reservations to finding destination guides to help you plan out your next getaway.
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- The high annual fee is only worth it if you’re taking full advantage of the card’s benefits. Seldom travelers may not get enough value to warrant the cost.
- Outside of the current welcome bonus, you’re only earning higher rewards on specific airfare and hotel purchases, so it’s not a great card for other spending categories.
- The annual airline fee statement credit can be complicated to take advantage of compared to the broader travel credits offered by competing premium cards.
- Earn 80,000 Membership Rewards® points after you spend $6,000 on purchases on your new Card in your first 6 months of Card Membership. Apply and select your preferred metal Card design: classic Platinum Card®, Platinum x Kehinde Wiley, or Platinum x Julie Mehretu.
- Earn 5X Membership Rewards® Points for flights booked directly with airlines or with American Express Travel up to $500,000 on these purchases per calendar year and earn 5X Membership Rewards® Points on prepaid hotels booked with American Express Travel.
- Get $200 back in statement credits each year on prepaid Fine Hotels + Resorts® or The Hotel Collection bookings, which requires a minimum two-night stay, through American Express Travel when you pay with your Platinum Card®.
- $240 Digital Entertainment Credit: Get up to $20 back each month on eligible purchases made with your Platinum Card® on one or more of the following: Audible, Disney+, The Disney Bundle, ESPN+, Hulu, Peacock, SiriusXM, and The New York Times. Enrollment required.
- $155 Walmart+ Credit: Cover the cost of a $12.95 monthly Walmart+ membership with a statement credit after you pay for Walmart+ each month with your Platinum Card. Cost includes $12.95 plus applicable local sales tax. Plus Ups are excluded.
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- $200 Airline Fee Credit: Get up to $200 in statement credits per calendar year in baggage fees and more at one select qualifying airline.
- $200 Uber Cash: Enjoy Uber VIP status and up to $200 in Uber savings on rides or eats orders in the US annually. Uber Cash and Uber VIP status is available to Basic Card Member only.
- Get up to $300 back per calendar year on the Equinox+ digital fitness app, or eligible Equinox club memberships when you pay with your Platinum Card. Enrollment required. Learn more.
- Breeze through security with CLEAR® lanes available at 100+ airports, stadiums, and entertainment venues and get up to $189 back per calendar year on your membership when you use your Card. Learn more.
- $695 annual fee.
- Terms Apply.
- See Rates & Fees