One great way to earn some extra points or miles is to refer a friend or family member for a new credit card. Banks like American Express, with its refer a friend program, will reward you with 10,000 to 20,000 bonus points if your referral gets approved. With Amex, you can earn 55,000 extra points each calendar year for each card you hold.
But that's a double-edged sword this year. Amex is issuing 1099 tax forms for these referral bonuses this year, listing the referral bonuses as taxable income. I received several of these forms late last week, and Reddit is full of stories of cardholders in a similar boat.
So what's going on? How does this work, and what should you expect for your tax bill if you earned some of these bonuses? Read on.
Amex is Making These Referal Bonuses Taxable
I participated in the Amex Refer a friend program in 2018 and sure enough, I received a few different 1099-MISC forms over the past week. I referred both personal and business American Express cards and received tax forms for both.
If you are not familiar with form 1099, it is issued to independent contractors or self-employed workers. For example, if you are a freelance writer, you can hire yourself out to individuals or companies on a contract basis. The income you receive from each job you take would be reported on Form 1099-MISC. You can read more about this at turbotax.com.
These taxes do not to points earned from welcome bonuses or actual spending on the credit cards. Only points earned from a referral bonus will be subject to tax.
How is Amex Valuing These Bonuses for Tax Purposes?
It appears that American Express is valuing the points at one cent each with the exception of Hilton Honors points, which are valued at 0.67 points each. This means that if you referred five people to a card that earns Amex Membership Rewards points in 2018 and earned 50,000 referral bonus points, you would receive a form 1099-MISC for $500. If you received 50,000 Hilton Honors points through referrals, you should get a 1099-MISC for $335.
Do You Have to Report the Bonus Points as Income?
Let me start by saying that I am certainly not a tax professional and it is always best to consult with one on your individual situation. However debatable taxing points earned from a referral bonus might be, it could be unwise to ignore the form 1099-MISC if you receive one.
Amex will be filing 1099s with the IRS, and the IRS will be expecting you to report this on your personal tax return. If you choose not to report it, you may get a letter from the IRS about the reporting discrepancy.
I have been referring American Express cards to friends and family for years and have never received a Form 1099-MISC. I am not sure why they decided to add this in 2018 or why they didn't proactively notify customers of this change.
When I look at the refer a friend terms and conditions page it does now make mention of referral bonuses being taxable income and that they are required to send form 1099-MISC for any referrals. I can't confirm if this has always been here or if this was a recent addition.
But these 1099 forms are new, and it's a bummer. These referral bonuses are a great way to rack up some additional points after you've earned that big sign-up bonus on a card.
This is certainly a bummer and something I wasn't expecting. While it does take some of the value out of the points for the referrer, you should still be able to come out ahead. Getting more than one cent per point in value isn't too difficult with many of the credit cards issued by American Express. Especially cards that earn American Express Membership Rewards points.