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American Express

American Express Gives Us More Reasons Not to Get an Amex Card

American Express Gives Us More Reasons Not to Get an Amex Card
Ariana Arghandewal

As if American Express hasn’t given us enough reasons to get rid of our Amex cards, here’s another: Recently, American Express began issuing 1099 forms for people who earned bonus points for referring their friends. A TPG staffer reported getting a 1099-MISC form reporting $100 worth of income. Considering that bonus was probably around 10,000 points, that comes out to 1 cent per point. This is going to affect a lot of cardholders who probably didn’t expect to be hit with a tax liability for a simple credit card referral.

I don’t subscribe to a point valuation system, so when people tell me they value Membership Rewards points at 1.4 cents each, I don’t really agree with that. Points are worth whatever you redeem them for and generally, you should redeem them when they save you money. That doesn’t always translate to 5 cents per point because you’re flying first class. At a minimum, all points should get me at least 1 cent per value, which would make the Amex valuation fair. However, for someone who can easily earn points at a cost of 0.06 cents each, I’m not thrilled at the prospect of “earning” them at 1 cent out of pocket.

Regardless of your opinion, it’s worth being aware that Amex is sending out 1099’s for points earned via referrals. Considering the tax implications, for some folks it may not be worth referring friends to Amex cards for bonus points. If you’re one of the people who got this 1099 after filing your taxes, you’ll have to amend your filing. Which I’m sure is a hassle, but a necessary one at that. And if you suspect you’ll get one in the mail, you may want to hold off on filing your taxes until it arrives.

Should points earned via referrals get taxed as income? I know people who earn tens of thousands of points a year doing this. These are folks who can’t qualify for affiliate contracts to generate revenue off referrals, so points are the next best thing. I guess if referral revenue is getting taxed, American Express figures points should be taxed as well. Lets hope other referral-based programs (i.e. Uber, Lyft, TopCashBack don’t follow suit).

For now, points earned via spend are still safe from 1099’s. That’s because these points are considered rebates and not income. But if that does ever change, I imagine American Express will be at the forefront of implementing that policy change. Fingers crossed that’s a long way off.

This is a good reminder to us all that earning points and miles isn’t truly “free” no matter what method we’re using. At any moment, the banks may decide that your point earnings should be classified as income and you’ll find yourself having to amend your tax returns to avoid a penalty.

Have you received a 1099 from American Express after referring friends to a credit card? Is the issuance of this form going to affect whether you refer friends to Amex cards?

 

[Image: Wikimedia Commons/Matthew Bisanz]

View Comments (10)

10 Comments

  1. Shadowfactor

    February 4, 2019 at 5:00 pm

    Amex isn’t the only one.

    Chase is mailing them as well.

  2. AirMiles2001

    February 4, 2019 at 5:42 pm

    It’s not such a big deal, there is a financial gain from bonus points so whats the harm in paying taxes on it? Death and taxes, remember?

  3. emma dog

    February 4, 2019 at 6:27 pm

    While I am not a fan of the 1099 and agree with your feelings, your interpretation of the cost of the miles is wrong. You “paid” whatever your marginal tax bracket is. So let’s say you made between $200-500k, your marginal tax bracket is 35%. Therefore you are paying $35 for 10k miles/points. 0.35 CPM. Pretty good deal!

  4. chongcao

    February 4, 2019 at 7:16 pm

    I think it is just a matter of time all airmiles get taxed if airline continue its road map towards a revenue based system. And that in turn will destroy the reward programme. Credit card companies and airlines needs to be careful not to kill the golden goose before their next revamp of the reward programme.

  5. Alex_I

    February 4, 2019 at 8:16 pm

    Ariana: Bloggers do get kickback from referring customers to CC and this could be considered a self-employment activity. Some of the points given by AMEX to bloggers could be treated as “employee awards”. Under the new tax law such awards including cash or cash equivalent, including gift cards, meals, tickets, lodging (i.e., something that can be consumed) is taxable where as t-shirts, for example, are not. AMEX is simply complying with the changes in tax law. So, if you refer a friend to a credit card you could be getting 1099. Then treat it as an income from self-employment and deal with it when filing taxes. So when you are convincing a colleague to sign for a credit card, you are working on behalf of AMEX and you are getting compensated. Let say I clean cutters in your house and you give me AMEX points. This would be taxable income under the current new law. May be they are specifically targeting bloggers or people associated with specific websites because AMEX suspects that those individuals are getting more than $600 in total compensation for such activities. Note that IRS requires to issue form 1099-MISC to each person to whom they have paid at least $600 in rents, services (including parts and materials), prizes and awards or other income payments. You can also argue with IRS that the pints you got are not worth the amount AMEX stated. However, I am not a tax attorney.

  6. Fyd

    February 4, 2019 at 9:06 pm

    1. This has been taxable income, it wasn’t an AmEx decision. The 1099 just forces people to report it… The likelihood of getting caught for tax evasion has gone from close to zero to close to 100%
    2. The only people for whom it wouldn’t be worth it are people who redeem for less than their marginal tax rate (max37%) or see the bonus as payment for their time to make the referral and value their time more…

  7. Gig103

    February 4, 2019 at 9:49 pm

    Don’t forget to tell people not to get a Chase Sapphire either, since Chase is sending out 1099s as well.

  8. mike28

    February 5, 2019 at 12:19 am

    Ariana needs to learn tax laws.
    Referral revenue (paid as money or points) has always been taxable and all referral revenue MUST be declared to the IRS whether you received a 1099 or not. Not doing it is tax fraud.
    Points earned from purchases are NOT taxable as they are considered rebates by the IRS.
    1099 must be provided when the taxable amount is above a certain threshold. Banks that failed to provide 1099 may have to pay a huge penalty to the IRS.
    Amex is just applying tax laws.

  9. AirMiles2001

    February 5, 2019 at 8:23 am

    Why would this be a reason for you to not use Amex any more? You would turn down $100 because you have to pay $24 of it in taxes? That’s not financially logical.

  10. rthib

    February 6, 2019 at 3:38 pm

    I’ll fix the headline:
    “I don’t really understand tax law but I’ll use this as an excuse because Amex is not giving me as big a kickback anymore so please use my links for another card that gives me better kickbacks for talking about them”

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