Everything You Need to Know About Taxes on Bank Bonuses, Interest Income, and Sign-Up Promotions
Yes, bank bonuses are taxable income. The IRS considers bank account bonuses, credit card cashback bonuses (when structured as sign-up bonuses rather than purchase rewards), and brokerage cash bonuses to be taxable. This guide explains exactly how bank bonuses are taxed, what forms you will receive, how to report them, and strategies for managing your tax liability.
How the IRS Classifies Bank Bonuses
Bank Account Bonuses (Checking and Savings)
The IRS treats checking and savings account bonuses as interest income. Banks report these bonuses on Form 1099-INT (Interest Income). Even though the bonus is a one-time cash incentive, the IRS classifies it the same as regular interest earned on your deposits.
Brokerage and Investment Bonuses
Cash bonuses from brokerage accounts are typically reported on Form 1099-MISC (Miscellaneous Income) as other income. Free stock bonuses are also taxable at the fair market value of the shares on the date they are received.
Credit Card Sign-Up Bonuses
Credit card welcome bonuses that require spending (e.g., “earn $200 after spending $500”) are generally treated by the IRS as rebates or discounts on purchases and are not taxable. However, bonuses earned without spending requirements (e.g., “earn $100 just for opening an account”) may be taxable. Most major credit card issuers do not issue 1099s for spending-based sign-up bonuses.
Referral Bonuses
Cash or stock earned from referring friends to a bank or brokerage is taxable income, typically reported on a 1099-MISC if it exceeds $600 from a single source in a tax year.
When Do Banks Send 1099 Forms?
Banks and brokerages must issue 1099 forms by January 31 of the year following the tax year in which the bonus was paid. You should receive your forms by mid-February. Check the mail (or your online account portal) for these forms from every bank where you earned a bonus or interest.
1099 Reporting Thresholds
- 1099-INT — Banks are required to issue this form for interest and bonuses totaling $10 or more in a calendar year
- 1099-MISC — Typically issued for miscellaneous income of $600 or more from a single payer
Important: Even if you do not receive a 1099 (because the amount was below the reporting threshold), you are still legally required to report all income on your tax return. The IRS expects you to report all bank bonuses regardless of whether you received a form.
How to Report Bank Bonuses on Your Tax Return
Interest Income (Form 1099-INT)
Report the total from all 1099-INT forms on Schedule B (Interest and Ordinary Dividends) if your total interest income exceeds $1,500. Otherwise, report it directly on your Form 1040, Line 2b (Taxable interest).
Miscellaneous Income (Form 1099-MISC)
Report 1099-MISC income on Schedule 1, Line 8 (Other income). This flows through to your Form 1040.
How Much Tax Will You Owe on Bank Bonuses?
Bank bonuses are taxed at your marginal (ordinary) income tax rate — the same rate as your wages and salary. They are also subject to state income tax in most states.
Example Tax Calculations
- A $300 bank bonus at the 12% federal bracket = approximately $36 in federal tax
- A $500 bank bonus at the 22% federal bracket = approximately $110 in federal tax
- A $750 bank bonus at the 24% federal bracket = approximately $180 in federal tax
Add your state income tax rate for the total tax impact. Even after taxes, bank bonuses are still free money — a $500 bonus taxed at 22% nets you $390, which is far more than you would earn in interest on a typical savings account.
Record Keeping for Bank Bonus Taxes
If you earn bonuses from multiple banks throughout the year, keep a simple tracking spreadsheet with:
- Bank name and account type
- Bonus amount received
- Date the bonus was deposited
- Whether you received a 1099 form
- The tax year the bonus falls in (based on when it was paid, not when you opened the account)
State Tax Considerations
Most states tax bank bonus income the same as federal. However, a handful of states have no state income tax (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming), meaning residents of those states only owe federal tax on their bonuses.
Frequently Asked Tax Questions
Can I deduct bank account fees against my bonus income?
Under current tax law, bank fees are generally not deductible for individual taxpayers. The Tax Cuts and Jobs Act of 2017 suspended the miscellaneous itemized deduction that previously allowed this. If you earn bank bonuses through a business account, the fees may be deductible as a business expense.
What if I had to return (clawback) a bank bonus?
If a bank reclaims a bonus that you already reported as income (for example, because you closed the account early), you may be able to claim the returned amount as a deduction in the year it was repaid. Consult a tax professional for guidance on your specific situation.
Do I need to make estimated tax payments on bank bonuses?
If your total tax liability (including bank bonus income) will result in you owing $1,000 or more in taxes above what is withheld from your regular income, you may need to make quarterly estimated tax payments to avoid an underpayment penalty. This is more likely if you earn large amounts in bonus income ($5,000+) across many accounts.
For more about your rights as a banking consumer, visit our Know Your Rights page. For general bank bonus questions, see our FAQ.