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]