Bank Bonus Tax Guide

Yes — bank bonuses are taxable. The IRS considers bank account bonuses to be interest income, the same category as the interest you earn on a savings account. This applies to checking account bonuses, savings account bonuses, and money market bonuses alike.

When you receive a bank bonus, it gets added to your gross income for the year it was deposited. You’ll report it on your federal tax return alongside any other interest income. The bank reports it to the IRS as well, so the government already knows about it.

This is true regardless of the bonus amount. A $100 bonus and a $1,000 bonus are both taxable. The only difference is whether the bank is required to send you a 1099 form — but the tax obligation exists either way.

Banks report bonus income using one of two IRS forms. Which one you receive depends on how the bank classifies the payment:

When to expect your 1099: Banks are required to mail 1099 forms by January 31 for the prior tax year. You should receive yours by mid-February. Many banks also make them available through online banking. If you earned multiple bonuses at the same bank, they’ll typically be combined on a single form.

Bank bonuses are taxed at your ordinary income tax rate — the same rate that applies to your wages, salary, and other earned income. The amount you owe depends on your federal tax bracket.

Keep in mind these are federal taxes only. State income taxes (where applicable) would be additional. Even after taxes, bank bonuses are still well worth pursuing — a $500 bonus nets you $380 even in the 24% bracket, which is still free money for opening an account.

In addition to federal taxes, most states tax interest income — including bank bonuses. Your state tax rate on the bonus will depend on where you live and your state income tax bracket.

However, several states have no state income tax, which means residents keep more of their bank bonus earnings:

Note: New Hampshire and Tennessee do not tax wages but have historically taxed interest and dividend income. Check your state’s current rules for specifics.

This is one of the most important tax distinctions in the bonus-earning world:

Why the difference? Bank bonuses are given for depositing money — you’re not “buying” anything, so the IRS treats the bonus as income the bank pays you. Credit card bonuses, on the other hand, require you to make purchases (meet a spending requirement), so they’re considered a rebate on that spending.

Exception: If you receive a credit card bonus that does not require any spending (rare), it could be considered taxable income. Referral bonuses from credit card companies may also be taxable. When in doubt, consult a tax professional.

• 1.Track all bonuses in a spreadsheet. Record the bank name, bonus amount, date received, and whether you received a 1099. This makes filing much easier and ensures you don’t miss anything.
• 2.Set aside ~25% of each bonus for taxes. A good rule of thumb is to reserve about a quarter of every bonus you earn. This covers federal taxes for most brackets plus a cushion for state taxes.
• 3.Watch for 1099 forms in January/February. Check your mail and your online banking portals. If you expected a 1099 but didn’t receive one by mid-February, contact the bank directly.
• 4.Report ALL bonuses even without a 1099. The IRS requires you to report all taxable income. If a bank didn’t send a 1099 (e.g., the bonus was under $600), you are still legally required to include it on your return.
• 5.Consider estimated tax payments if earning many bonuses. If you earn several thousand dollars in bank bonuses per year, you may want to make quarterly estimated tax payments to avoid an underpayment penalty when you file your return.