Uh Oh: Amex Sending Out 1099s For Referral Bonuses

Filed Under: American Express

Amex has a “refer a friend” program, where you can earn bonus points for referring people to many of their cards. The program is a win-win, as it allows existing cardmembers to earn bonuses for referring friends to cards they like.

Are credit card rewards taxable?

The topic of taxation when it comes to this stuff is an interesting one (let me say upfront that I’m not a tax professional, and this is just my take). As a general rule of thumb, airline miles, hotel points, and credit card points aren’t taxable. Typically you’re only on the hook for taxes on points if they’re won as a prize (like if you win a sweepstakes), or if they’re an incentive that isn’t a rebate.

That last point can be confusing. Generally speaking credit card rewards are considered rebates, since you’re earning them for spending that you’re putting on credit cards.

However, when you earn a reward for referring someone to a credit card, arguably that’s an incentive that isn’t a rebate, since you don’t have to spend anything to earn that reward.

At the same time, historically these types of things typically haven’t been taxable, or at a minimum, 1099s haven’t been issued for them. The exception is several years back when Citi issued 1099s for the miles they offered as part of opening a checking account.

American Express Members Rewards Earning Cards

Amex is sending out 1099s for referral bonuses

There are several reports on Reddit that Amex is sending out 1099s for those who took part in Amex’s refer a friend program. Note that this doesn’t apply to welcome bonuses or rewards from spending, but rather just points from referrals.

Some people have already received letters in the mail, while others know they’re getting letters from Amex due to informed delivery. Here’s an example of one of the forms that someone received. This is being sent out even when the value is below $600, which is usually the amount at which you’d get a 1099 in such a situation.

How Amex is valuing points, and how you can dispute the values

It’s interesting how Amex is valuing points here — it seems that they’re valuing Amex Membership Rewards and Starwood Preferred Guest points at one cent each, and Hilton Honors points at 0.67 cents each:

  • The valuation of one cent per Membership Rewards point sounds low (though not unreasonable, since that’s typically the rate at which you could redeem the points towards a travel purchase, and most people aren’t getting more than one cent of value per point)
  • The valuation of 0.67 cents per Hilton Honors point sounds on the high side (personally I value the points at 0.5 cents each), though it’s also not unreasonably high, and for just about anyone should be worth it even after paying taxes on that amount)

We’ll have to wait and see if everyone who referred people gets these 1099s, or what criteria they use, as this is still developing for now.

Note that generally speaking you can dispute the values for these kinds of things on 1099s. Several years back View from the Wing wrote a useful post about how to do this (it basically requires calling the IRS), and I imagine similar advice still applies.

Personally I wouldn’t be disputing the value of one cent per Membership Rewards point. However, some may find it reasonable to dispute the value of Hilton Honors points, though I guess it comes down to whether or not you find that to be worth your time.

Bottom line

This is a bit surprising since Amex hasn’t sent out 1099s in the past for these kinds of things, but they’re certainly within their rights to do so. On the plus side, at least their valuation of Membership Rewards points is reasonable. Sadly their valuation of Hilton Honors points is definitely on the high side.

If you receive a 1099 from Amex regarding referring people to cards, please report back!

Comments
  1. “The valuation of 1.2 cents per Hilton Honors point sounds way, way high”
    I could hear DCS’ gasp from here.

  2. How can points be taxed as income when, per the programs’ own terms and conditions, they are owned by the issuing entity and not the program member?

  3. Dan makes an excellent point. If you are going to 1099 someone for them, it should only come once they are redeemed, since until that point they remain the property of AmEx. In addition, it should be for the redeemed value of the redemption (which becomes next to impossible if that redemption comes in the form of a points transfer).

  4. I referred one person for the Amex Gold Card. Received like 10k points i think. I wonder if I’ll receive a 1099 form…

  5. Even if you don’t receive a 1099 for, say, a checking or savings bonus, do you not still need to report as income?

  6. So, if I got 50,000 points in referrals, the IRS says I got $500 of income. How much do you want to make a bet that if I cashed in those 50,000 points to buy a $500 plane ticket for my business travel, the IRS wouldn’t allow a $500 business expense deduction? And if that is the case, which i suspect it is, it is logically incongruent that the points are taxable.

  7. Is it possible to return the points? Frankly not sure they are worth it at that valuation. Anyway, that will be the end of my Amex referrals.

  8. “How can points be taxed as income when, per the programs’ own terms and conditions, they are owned by the issuing entity and not the program member?”

    That may be true of MR points, but not of Hilton; AmEx is paying for them, but Hilton is the issuing entity.

    That said, given that Hilton sells their own points for 1 cent, I have trouble understanding how they could possibly be worth more than that.

  9. Since one is taxed for certain type of points, then would using these points (ones that are taxed) for business be tax deductible? Say I received 20K Hilton points. If I booked a business hotel with 20K Hilton points, would that imply a net tax of 0?

  10. From the thread, it seems like some people are being taxed for MR rewards if it reaches a certain amount looks like if it’s over 50k, and Hilton seem to be at a lower rate of .50 a point I did about 60k in referrals so now I have something else to wait for taxes possibly? not sure I think its worth 600$ for MR points I wonder if this is only for people at a certain threshold

  11. Considering breakage, risk of loss of the points, and devaluation possibility 1 cent isn’t necessarily low for MR points in the broader scheme of value. Closer to 0.5 cents might be worth a try for valuation. Cash value is around that range with MR.

    Hilton is comical.

  12. @Dan T: The issue is that regardless of who paid for the points in my Hilton account, I don’t own them; Hilton does.

  13. One thing to keep in mind (since some here seem confused on this) is that the value they assign to the points is considered “income” and *not* what you would owe to the IRS.

    Say you qualify for the 24% tax bracket and have AMEX reporting $500 on a 1099 — you would owe $120 to the IRS as well as any applicable state taxes.

    This *is* consistent with what the IRS says is considered taxable because it’s considered “interest” and not a “rebate” (which points awarded for purchases are).

    AMEX also has text on their referral page stating that a 1099 may be issued when you get points for a referral.

  14. @Joe sez: ‘“The valuation of 1.2 cents per Hilton Honors point sounds way, way high”
    I could hear DCS’ gasp from here.’

    Why would I gasp when I haven’t got the foggiest about where that valuation came from, nor whether it is being interpreted correctly, considering the near universal confusion among self-anointed travel gurus on the issue of the ‘value’ of points currencies. I am almost 100% certain that AMEX (actually, the professional actuarial service that they likely used) did things correctly. The 1.2cpp could be what is called the ‘fair market value’ rather than the ‘average redemption value’ of HH points that bloggers throw around.

    I’ll gasp when there is a reason to. AMEX is in the money business and I am sure that they know what they are doing, so I will give them the benefit of the doubt until their methodology is known and found to be lacking.

    G’day.

  15. What does Amex stand to gain by doing this, other than pissing off those who refer the cards to others?

  16. Received three 1099s . $150, $150, and $450. Did refer family members for the SPG personal and business. Had I known I would be taxed, I would have never referred. Not worth the expense or the hassle of adding additional paperwork in my tax preparation. It goes without saying, I will never refer again. Extremely dissapointed with AMEX

  17. AMEX points = taxable income???
    Any CPA’s or tax professionals on here??? I’m no expert, but while card holders may earn points, any real monetary profits go to AMEX, right? So, any sort of tax liability from a referral bonus should be absorbed by AMEX, no? Maybe, MAYBE, I’d understand if the referral reward came in the form of a statement credit, but this just doesn’t make sense to me. But maybe I have a lot to learn.

  18. @TravelinWilly is spot-on. Why in the world wouldn’t Amex fight this tooth and nail? 1.2 cents for Hilton points is stupid. (And I’m a Hilton fan who consistently redeems at .006, occasionally .0075.) 1.2 cents? Just dumb. Further, if they are not absolutely legally required to deliver 1099s, or to deliver them to folks whose referral bonuses would be less than $600, why would they do that? Instead of getting a free referral bonus that made me happy, I feel like they just sold me points at a discount – and yet neither Amex nor Hilton gets the price for the points! Reminds me of the ridiculous way Chase/IHG handled the free night certificate restrictions a while back. Why can’t these companies just do a check of reason with someone like Lucky before rolling stuff like this out? He’s not the final word, but again, 1.2 cents for Hilton points is stupid. Should be able to engage and do business with Amex without having to deal with inaccuracies and annoyances.

  19. With everyone saying that they will never refer again if they are going to get taxed, perhaps that is why I Amex is doing this. I did my first referral last year and the bonus was 25,000 or 35,000 more points than the regular offer. Combined with the ten thousand or so points my friend got for his referral, wasn’t Amex giving at least $350 worth of extra value than they would have if I had gone through the normal route? Perhaps this is all too dissuade people from abusing the referral system?

  20. @Lucky,

    On a completely different topic I was on the AA site today and for a little while the Business SAAver awards were pricing at 62,500 points. It’s back to 57,500 now. A glitch in the system or a test of a coming devaluation? Anyone have any information on this?

  21. didnt u just get a 3rd credit card fraud? why do u have all ur Amex cards PICTURED with their numbers and codes on the header? ai ai ai Ben……

  22. Bonus points from referrals are considered taxable income by the IRS. Here are the general rules: points earned as a results of making a purchase are considered a REBATE and are thus not taxable. Points earned without credit spend (like bonus points for referrals) are taxable are and will trigger the issuance of a 1099-MISC by the CC company. In short, there is no such thing as a free lunch 😉

    From INVESTOPEDIA:

    “Types of common credit card rewards that are not counted as income include cash-back programs, travel miles bonuses, accumulated points towards future purchases and credit card sign-up bonuses that require a financial transaction to be realized.

    If, however, the sign-up bonus for your credit card does not require that you make any purchases or charge any amount to your card, then you are likely to receive a 1099-MISC tax form in the mail in conjunction with the bonus. Since the IRS requires that these benefits be treated as income, you must document your rewards on the 1099 form. In some circumstances, the issuing credit card company reports the rewards as income to the IRS and state authorities, but this is usually only the case when state law requires such reports.

    You do not necessarily have to receive money in order for the sign-up bonus to be considered taxable. Anything that is provided without being attached to the use of your card – such as airline miles, gifts that are tangible goods or other valuable rewards – are normally taxable income. If you have questions about your credit card reward programs and their tax implications, it is best to consult an actual tax expert and not the issuing credit card company.

    If you receive a 1099-MISC form in the mail as part of a rewards program, do not ignore it. Even if you believe that your gift should not qualify as taxable income (or if you plan on donating your gift to charity, creating a possible tax deduction), you are better off talking to an expert. The IRS has become increasingly competent at tracking income from these sources, and you do not want to subject yourself to a tax penalty because you failed to report your credit card rewards appropriately.”

  23. Looks very reasonable to me. Americans get all the crazy bonuses and thus occupy a disproportionate % of seats in front of the plane and premium hotel rooms, reducing availability for non-americans while driving price inflation and points devaluation.
    I can see a solid basis for being taxed on the excessive freebies here given the fact the benefits are extended for free.
    People who earn their miles or cashbacks through flying and shopping have spent for it, making it an embedded element of price.

  24. @SEAguy & everybody — Please just calm down! With all due respect to @Lucky, AMEX does not him to teach them about the “value” of points, which most bloggers, in fact, only have a rudimentary understanding of. There are strict and complex international financial accounting and reporting standards that must be followed, and there are companies, like PricewaterhouseCoopers (PwC), that offer related actuarial services to major financial institution. I am sure AMEX had this done correctly.

    G’day.

  25. @DCS I actually agree with a lot of the points you make about how people undervalue the Hilton rewards program. However, if Hilton’s everyday sale price for points is 1 cent, then it is just plain stupid that Amex would send their customers 1099’s claiming the value of a Hilton point is 1.2 cents.

  26. I can only imagine how much tax Lucky has to pay from Amex and Hilton referrals! Sorry to hear about this Lucky. I’m sure it’s a huge dent. Will you continue to refer Amex cards from now on? Will it be worthwhile for you to bother?

  27. @Seaguy — You do not know how the value of 1.2 cpp was derived. Until you do, it makes no sense to pontificate. I have gotten REDEMPTION values for Hilton awards, which are the only ‘value’ of points currencies that you and everyone think about, that exceed 2cpp, but all the one keep thinking ~0.5cpp. For accounting or reporting purposes, many factors need to considered, and elaborate statistical models are used to estimate the value of a loyalty point.

    Hilton sells their point a penny each. After other factors are taken into account (e.g., ‘breakage’, ‘forfeiture’, ‘reward leverage’, or that Hilton points are earned and redeemed more than any other point), it is more than plausible that the “fair market value” of each HH point would be 1.2cpp.

    Formulae are complex and “to calculate the value of a point, companies use an average cost approach, which is modified over time, based on the changes in product and reward mix, and on experience as to how points are claimed.

    Overall cost per point redeemed = Cost of reward A ÷ points to redeem reward A x percentage of points used for reward A + Cost of reward B ÷ points to redeem reward B x percentage of points used for reward B + Cost of reward C ÷ points to redeem reward C x percentage of points used for reward C + etc…+ etc…+ etc…”

    Please do not speak of matters that you know very little about and can be very complex in very simple terms that to do begin to describe the problem!

  28. …”that do not begin to describe the problem!”

    I wish they would implement here the ability to edit comments like DISQUS offers!

  29. On reddit two people reported that Hilton points are valued at 0.67 cpp. If so I may not have to pay a lot more taxes for just one referral. However I wonder if I should hold off filing my taxes over this. I hope if they are going to send me an 1099 it would arrive soon. I’m fine with paying a small amount of taxes but don’t like delaying my refund… I likely would not do referrals again, though.

  30. I agree with @SeaGuy. Looks like @DCS loves “authority” and “complication” and cannot see a simplicity staring him in the face. If you can buy something for 1 cent on the open market it is clearly not worth 1.2 cents, no matter how many accountants, quants or whatever come up with that answer. And when you think they are all brilliant at the accounting firms remember that Arthur Anderson went belly up after their wonderful work with Enron.

  31. Funny. People debating the value of HH points which is a very minor issue.
    The bigger point here is that taxing rewards creates a much better level playing field and will reduce the unfair advantage that americans have been enjoying versus anyone else.
    I see this as a very positive development for those who earn their miles from an underlying cash-out.

  32. @Tom

    Exactly. Those auditors can likely apply the formula to calculate correctly, however the outcome still depends on the input assumptions. Auditors will be in no position to come up with fair assumptions as they lack the knowledge.
    So all this modelling is no exact science at all.

  33. @Tom — Whom you agree with is completely irrelevant, as long as none of us knows how the value was derived. Is that too tough to grasp? Now, @David just reported right before your comment that a value of 0.67cpp has also been reported. So, which is it?

    See how silly it is to take sides in a ‘debate’ when the facts are fluid or not yet established?

    More to the point is that there is absolutely nothing ‘simple’ about loyalty accounting. Information is free and at your fingertips. Find it and use! For instance you can begin by cutting and pasting te following in your browser search utility:

    “New revenue recognition rules: How will they affect loyalty programs?” by PwC.

    There is nothing ‘simple’ about it; but your thinking definitely is.

    G’day and goodbye.

  34. @Ron — AMEX has the raw data; lots and lots of it, which is precisely what is required for the complex actuarial calculus and modeling that go into figuring out these things to approach ‘exact science’…

    I would trust their results, for which they would be liable if they are wrong, over the confused claims of bloggers, who have paid no price despite being wrong almost all the time.

  35. @DCS

    Yes, it will at best approach exact science, but never be exact.
    I have been in charge for loyalty programs for years for sizeable companies (50 million+ accounts) and know how money is made from having your statistics right.
    But I have never been impressed by the capabilities of auditors to truly understand the dynamics, they tend to take a rather mechanical (read:safe) approach to things.

  36. @Ron — Unless you know otherwise, economics is not an exact science, so that your expectations are unrealistic. Approaching exact science is the best that can be done, which I am sure AMEX did.

    G’day.

  37. While it’s true that the 1099 must be *issued* by January 31st, that’s just when they must issue and mail it. It’s not considered “late” until “mid-February” based on IRS guidelines for when you should consider contacting them about a missing or late income documents.

  38. @DCS: If your reading comprehension skills were as strong as your defenses of Hiltoon, you would have understood that the “gasp” was tongue-in-cheek commentary on lucky’s claim that 1.2 cpp was “way way high”, NOT that you would disagree with AMEX’s valuation of said points.

  39. And before you launch into another blistering counterattack, the misspelling of “Hilton”—though amusing—was unintentional.

  40. @Steven L. — Based on the majority of comments that I addressed on the same point, I would say that my reading comprehension is consistent with how most understood the salient point (1.2cpp is “way too high”) in that comment to be, raising the question about whose reading comprehension skills need polishing, the misspelling aside.

  41. @DCS Your attitude sucks. Not sure who you are but seems these people respect you for whatever reason…but You can explain these things without being an Ass…try that.

  42. What’s with the hostility? I was reading a few of the comments. It seems there are some very smart people on here who probably just haven’t gotten laid in a really long time.

  43. Are the typical people actually upset, or are the hawkers trying to sway opinion because this affects them?

  44. @Sassy — You just made my point. I have never addressed you before and yet here you are calling me names. My attitude “sucks” because I have run into too many air-heads like you with nothing to contribute to the discussion, but find my comments too erudite for their limited intellect, so they launch gratuitous, unprovoked insults. I will always respond in kind because that is the only language they understand. Go back and assess the tone in each of my comments. It matches the tones in the comments I responded to.

    Now, how about trying your own advice in the future and avoid addressing people you do not know for the first time by insulting them?

    G’day.

  45. CPA here. If you take into income the value of an asset (points) then you have a tax basis in that asset equal to the amount of income. If you use that asset to pay for a business expense, the amount of tax basis is a deductible business expense.

  46. I guess you have a lot of readers outside USA such as myself, therefore an explanation of what an 1099 would be nice. Also i think a trip review is long overdue

  47. My goodness, the vitriol in the comments.

    And all this over having to pay income tax. All the normal online/software tax filing programs make this super easy, so I don’t understand the complaints about the paperwork. Even if you are in a high tax bracket, surely receiving 50% of a referral bonus is better than receiving 0% of a referral bonus.

    As for why Amex would do this, the penalties to a business for not filing 1099s when the IRS says they should have been filed are sufficiently large that they would certainly comply with the law. If you believe the value you have received from Amex is less than declared on the 1099 there is a process to claim this.

  48. Should be an interesting situation when Amex sends out a 1099 for points. You file your taxes and Amex subsequently claw back the points because you violated their T&C by self referral or “gamed the system” somehow.

  49. The great news from this is that people are going to stop constantly posting their referral links in various forums and people like TPG and Lucky will have to write the IRS a big fat check for his credit card shilling.

  50. This legislation taxing “rewards from the refer a friends program” was passed in late December when the Republicans controlled Congress and it was embraced by President Trump. Actually, minority Democrats were opposed. Amex was notified and was caught off guard in mid January with very little notice. My hit was $702 for three credit cards and I am not contesting it, but in the future I would forget the referral programs.

  51. @Peter DeNegris Very interesting. Please provide more details if you have them.

    The problem is that American Express has a conflict here. There is, of course, a range of values one could assign to each point, and they could all be considered reasonable, if not necessarily fair. It would, unfortunately, seem to be in American Express’ best interest to overvalue the points. If they gave them their real practical value (and especially given that they are non-transferable), the values would be on the low side and that would not be good for marketing purposes of American Express and its partners.

  52. Nevsky-

    This mess was created with the new tax legislation which member of Congress could barely understand what exactly all the ramifications would be. Chase, Amex and others were told about it in early January 2019. They are rushing to get the 1099 out for all these referral programs. When you call Amex for information most reps know nothing about the issue. In fact a rep. in India would not even know anything about a 1099. Amex made a big mistake by not immediately letting cardholders know the IRS laws were changed Jan 1 2019 and explaining why they would receive a 1099. No where on their website does it even make a mention. 98% of their employees are clueless. Bottom line – I would include the AMEX 1099 on your income tax and avoid a hassle down the road with the IRS. The IRS determined this tax ruling in very late December based on the new and extensive tax legislation.

  53. I agree Amex has overvalued the points, but the process to fight it is not worth it. Never again would I refer anyone. Just completing my taxes and moving on.

  54. AmEx is taking a tax deduction for the cost of these points.
    SO, someone has to be getting the other side of the transaction as revenue and has to pay the tax.

  55. @Pete
    What is the name of the new tax legislation? I googled and could not find anything passed in Dec 2018. (I thought they were too busy fighting against each other to pass anything at all.) I did find some info on referral marketing and I believe it has been for years that sending out 1099s and require W9s for anyone with total referral rewards over $600 are mandatory.

    I’m totally okay with paying a little taxes for my small referral bonus but I do wish Amex could have more transparency. (e.g. they should request a W9 to be filled before giving such rewards and sending out 1099s) Or at the very least send an e-mail disclosure in advance.

  56. 2018 tax reform. Lot of changes. IRS had difficult keeping up with so much in so little time. The reform was not in December which I wrongly indicated, but the IRS interpretation came out very late in December. 2018 is the first year the IRS indicated to the banks they needed to send out the 1099’s.

    DCS in a previous post did an outstanding job to highlight the IRS guidelines…

    Here is what DCS stated…… Bonus points from referrals are considered taxable income by the IRS. Here are the general rules: points earned as a results of making a purchase are considered a REBATE and are thus not taxable. Points earned without credit spend (like bonus points for referrals) are taxable are and will trigger the issuance of a 1099-MISC by the CC company. In short, there is no such thing as a free lunch

    From INVESTOPEDIA:

    “Types of common credit card rewards that are not counted as income include cash-back programs, travel miles bonuses, accumulated points towards future purchases and credit card sign-up bonuses that require a financial transaction to be realized.

    If, however, the sign-up bonus for your credit card does not require that you make any purchases or charge any amount to your card, then you are likely to receive a 1099-MISC tax form in the mail in conjunction with the bonus. Since the IRS requires that these benefits be treated as income, you must document your rewards on the 1099 form. In some circumstances, the issuing credit card company reports the rewards as income to the IRS and state authorities, but this is usually only the case when state law requires such reports.

    You do not necessarily have to receive money in order for the sign-up bonus to be considered taxable. Anything that is provided without being attached to the use of your card – such as airline miles, gifts that are tangible goods or other valuable rewards – are normally taxable income. If you have questions about your credit card reward programs and their tax implications, it is best to consult an actual tax expert and not the issuing credit card company.

    If you receive a 1099-MISC form in the mail as part of a rewards program, do not ignore it. Even if you believe that your gift should not qualify as taxable income (or if you plan on donating your gift to charity, creating a possible tax deduction), you are better off talking to an expert. The IRS has become increasingly competent at tracking income from these sources, and you do not want to subject yourself to a tax penalty because you failed to report your credit card rewards appropriately.”

  57. @DCS: All that would suggest is that rather than being a uniquely poor reader, you’re part of a pretty large group of lucky’s commenters who share poor reading skills, or—in my opinion less flattering—who are in too much a hurry to fire off another broadside to check if they actually caught the message.

  58. @Steven L. — Yeah, right. Yet another one who cannot even tell when the train he’s supposed to on left the station, but believes himself to be the only one who enlightened.

    Good luck.

  59. Trump’s America. Millionaires get away with murder, the middle-class gets nickle and dimed for everything. Everyone who voted for this can #killthemselves

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