American Express Gives Us More Reasons Not to Get an Amex Card
Ariana Arghandewal February 04, 2019
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]
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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"
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.
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.
Don't forget to tell people not to get a Chase Sapphire either, since Chase is sending out 1099s as well.
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...