Tax Guide for Bank, Credit Card, and Brokerage Bonuses

Earning bonuses from banks, credit cards, and brokerages is exciting — but Uncle Sam wants his share. Understanding the tax implications upfront helps you plan better and avoid surprises at tax time. Here's what you need to know about how each type of bonus is taxed.

Bank Bonuses: Always Taxable

Bank sign-up bonuses are considered interest income by the IRS. The bank will report them on a 1099-INT (or occasionally a 1099-MISC) if the bonus is $10 or more. You must report this income on your tax return even if you don't receive a 1099 — the threshold for reporting is lower than the threshold for the bank to issue a form.

• •How it's taxed: As ordinary income at your marginal tax rate.
• •Form you'll receive: 1099-INT or 1099-MISC, usually by January 31 of the following year.
• •Where to report: Schedule B of your Form 1040 (interest income).
• •Example: A $400 bank bonus for someone in the 22% bracket costs $88 in federal taxes, leaving a net gain of $312.

Credit Card Bonuses: Usually Not Taxable

Here's the good news: most credit card sign-up bonuses are not taxable. The IRS treats credit card rewards (including welcome bonuses) as a rebate or discount on purchases, not as income. Since you had to spend money to earn the bonus, it's considered a reduction in cost rather than income.

• •Spend-based bonuses (e.g., "earn 75,000 points after spending $4,000") — Not taxable. The bonus is tied to purchase activity.
• •Referral bonuses — Taxable. If you receive a bonus for referring a friend, you didn't make purchases to earn it.
• •Bank account opening bonuses tied to a credit card — Taxable as interest income if no spending was required.

Brokerage Bonuses: Taxable

Cash bonuses from brokerages are taxable as ordinary income. Free stocks are also taxable — the fair market value of the stock on the day you receive it is considered income. You'll typically receive a 1099-MISC from the brokerage.

• •Cash bonuses — Taxed as ordinary income at your marginal rate.
• •Free stocks — Taxed on the fair market value when received. You'll also owe capital gains tax when you sell (on any appreciation above the value when received).
• •Transfer bonuses — Taxed as ordinary income.

Keeping Records

Good record-keeping simplifies tax time considerably. For each bonus you earn, track:

• •The institution that paid the bonus
• •The amount or value received
• •The date the bonus was paid
• •Whether you received a 1099 form
• •The type of bonus (bank, credit card spend-based, referral, brokerage)

State Taxes

In addition to federal taxes, bonus income is subject to state income tax (if your state has one). States like California, New York, and New Jersey have high state income tax rates that take an additional 5-10% of your bonus earnings. States like Texas, Florida, and Nevada have no state income tax, meaning you keep more of your bonuses.

Estimated Tax Payments

If you earn a substantial amount in bonuses (particularly bank and brokerage bonuses), you might need to make estimated tax payments to avoid an underpayment penalty. The IRS expects you to pay taxes as you earn income, not just at filing time. Generally, if you expect to owe $1,000 or more in additional taxes, you should consider quarterly estimated payments.

The Bottom Line: It's Still Worth It

Even after taxes, financial bonuses are free money you wouldn't have earned otherwise. A $500 bank bonus that costs $110 in federal taxes still puts $390 in your pocket for about 15 minutes of effort. And credit card bonuses — which are mostly tax-free — are even more valuable. Don't let taxes discourage you from pursuing bonuses; just factor them into your calculations and keep good records.