Bonus Miles May Be Taxable
Determining what is taxable and what is off limits to Uncle Sam during filing season can be difficult sometimes when it comes to lesser-known sources of income or gifts. And a new move from Citibank may have just added a new challenge for customers who enrolled in checking or savings accounts with the financial institution.

Citibank recently sent out 1099 forms to customers who received bonus miles for enrolling in a checking or savings account, and when tax season rolls around, these miles may be taxable. The financial institution recently reported to the IRS that it plans to treat these bonus miles as miscellaneous income, meaning that customers who received them will be responsible for paying Uncle Sam at tax time. Citi has said one mile represents the equivalent of 2.5 cents. This means that new account holders who received 25,000 miles will be taxed on its equivalent of $625.

Customers will only be taxed on bonus miles received for signing up for a new account and the move will not apply to individuals who accrued miles through regular credit card spending.

The move has received a backlash from consumers who said they were unaware when they signed up for the account that their bonus mile would be taxed. However, Citi explains that the tax implications of accepting bonuses were listed in its disclosure agreement. Citi spokesperson Sean Kevelighan says the move falls in line with current tax rules.

"Rewards and airline miles that are provided in connection with a purchase on a credit card are routinely not subject to individual income tax reporting," Kevelighan told the Los Angeles Times. "When a customer receives a gift for opening a bank account - whether cash, a toaster or airline miles - the value of that gift is generally treated as income and subject to reporting."

The IRS echoed Kevelighan's statement and noted that in some cases, bonus miles received in exchange for enrolling in a service may be taxable. Individuals who receive 1099 forms from institutions should include these documents in their taxes when working with their tax preparer. In addition, it's important that consumers read disclosure forms before signing up for credit cards that offer bonus miles and contact a tax professional if they have questions about the tax ramifications.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

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