By: Kelly Anderson
With tax season right around the corner, many Citibank customers enrolled in its various airline reward programs were surprised to learn that the bonus miles they earned for signing up for a checking or savings account may be considered taxable income.
Citibank recently sent out 1099 tax forms to a sizable number of customers recently who received bonus miles following their new account membership, according to the Los Angeles Times. The move only affects those customers who received bonus miles for enrolling in a savings or checking account, as opposed to those who accrued rewards through regular credit card spending. Citibank plans to label the miles as miscellaneous income on their tax forms, a move that result in those bonuses being taxable to consumers.
Ohio senator Sherrod Brown, Senate Banking Subcommittee on Financial Institutions and Consumer Protection chairman, expressed his disdain for the move in a letter he wrote to Citibank.
"The last thing Citibank should be doing is creating baseless fear in middle-class families, or placing a nonexistent tax burden on the backs of families who are already struggling to make ends meet," Brown wrote to Citi chief executive Vikram Pandit.
Citibank has defended the move and is currently valuing each mile at 2.5 cents.
"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," said Sean Kevelighan, a Citi spokesman. "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. This is separate and distinct from miles or points earned by our credit card customers for their purchases."
The bank also notes that the tax ramifications were detailed in its terms and agreements section. Currently, the IRS has found no legal or tax discrepancies with Citibank's action.