Don't Waste Your Money: Bank freebies may be taxablePosted: Updated:
Remember when banks handed out free toasters for opening an account? Nowadays, they hand out cash, tickets and more, but there's a downside to bank freebies.
If you win money on a game show, you have to pay taxes on it. If you win a car in a contest, you have to pay taxes. What about the toaster you get for opening up a checking account? Now, even that may be taxable.
Free Tickets? Sure!
Everyone loves a freebie when they open a new bank account, whether it's $100 cash, small appliances, or tickets to a game. That's what Don Rolfes says his mom was offered when she opened a checking account last fall.
"She started a checking account," Rolfes said. "And sometimes there are incentives for starting an account with a different institution. And the woman said, 'Here's some NFL tickets,' and that's all there is to it."
But Rolfes' mom wasn't expecting what then arrived in her mailbox.
Congratulations, Now Pay Taxes
"A couple of weeks ago we received a 1099, which states that my mom received $120 of income," Rolfes said.
A 1099? Rolfes - who does his mom's taxes for her - says that means she will have to pay taxes on her free gift.
"It is an economic benefit, so it is taxable. The main issue I have with it is that nothing was discussed about tax issues, and she didn't know about it," Rolfes said.
A bank spokesman says that it now issues 1099s for any gift worth more than $10, due to tougher, new IRS rules on gifts. In the past, the cutoff was $500.
Rolfes says he just wished his mom had been aware of the consequences, and would not have taken the NFL tickets had she known about it.
"She is not a sports fan," he said. "She actually did not end up using the tickets. She gave them to a friend."
Many Banks Doing This
According to a bank spokesman, the tickets should have come with a letter attached, explaining the gift would be reported to the IRS.
Other banks are now reporting gift card bonuses and free frequent flier miles as taxable, according to the Wall Street Journal.
With the new $10 threshold, even that free toaster may be taxable.
So be careful with those freebies, so you don't waste your money.
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