How to Report Checking Account Bonuses on Your Taxes

If you received a checking account bonus last year, congratulations! Free money is always nice. But here’s the catch—Uncle Sam wants his cut.

Related Article: WHAT TO LOOK FOR IN A CHECKING ACCOUNT

Most people don’t realize that bank account bonuses aren’t just a nice perk. The IRS considers them taxable income. That $200 bonus you earned for opening a new checking account? It’s not just sitting in your account—it’s on the IRS’s radar. Ignore it, and you could face penalties or unexpected tax bills down the line. Let’s break down exactly how to report your checking account bonuses the right way, so you can stay compliant and avoid headaches come tax season.

 

What Is a Checking Account Bonus, and Why Is It Taxable?

Banks love attracting new customers, and one of the easiest ways to do that is by offering cash bonuses for opening a checking account. These promotions usually require you to deposit a certain amount, set up direct deposit, or keep your account open for a specified period.

Sounds like free money, right? Well, not exactly. The IRS views these bonuses as taxable interest income because they don’t require you to perform work or provide services (which would make them wages). Instead, they are considered a form of interest, just like the interest you earn on a savings account. This means they fall under the category of miscellaneous income and must be reported on your tax return.

 

How Banks Report Checking Account Bonuses to the IRS

Banks are required to send a Form 1099-INT if the total interest (including bonuses) you received from them exceeds $10 in a year. If your bonus meets or exceeds this threshold, you’ll likely receive a 1099-INT by January 31st of the following year.

What If I Don’t Receive a 1099-INT?

• Some banks fail to send a 1099-INT, even if you earned over $10 in bonuses.
• Even if you don’t get a form, you are still responsible for reporting the income on your tax return.
• Check your online banking statements or contact your bank to confirm the total bonus amount received.

 

How to Report Checking Account Bonuses on Your Tax Return

Once you have your 1099-INT (or the total amount of bonuses earned), follow these steps:

Step 1: Locate the Income on Your 1099-INT

• The bonus amount will appear in Box 1 (Interest Income) of Form 1099-INT.
• If you received bonuses from multiple banks, you may receive multiple 1099-INTs.
  
  

Step 2: Enter It on Your Tax Return

• If you file taxes using Form 1040, report the bonus under the “Interest Income” section on Schedule B (if total interest income exceeds $1,500).
• If your total interest income is below $1,500, you can report it directly on Line 2b of Form 1040 without filing Schedule B.
  
  

Step 3: Verify Your Total Taxable Income

• The IRS will compare your reported income to the 1099-INTs they receive from banks. If there’s a discrepancy, you could be flagged for an audit.
• Double-check your total reported income to ensure accuracy.
  
  

Common Mistakes to Avoid

1. Ignoring Small Bonuses

Even if you only received $5 or $10, technically, you still need to report it. The IRS can penalize you for unreported income.

 

Cashback earned from debit card spending or credit card purchases is not taxable since it’s considered a rebate, not interest income.

 

If you referred friends and received cash bonuses, those also count as taxable income.

 

If you opened several accounts in a year to take advantage of multiple promotions, keep a spreadsheet to track all bonus amounts.

How Checking Account Bonuses Impact Your Tax Bill

Since checking account bonuses are classified as interest income, they’re taxed at your ordinary income tax rate, which varies depending on your total earnings.

Example:

• You earn a $200 checking account bonus.
• Your tax bracket is 22%.
• You’ll owe $44 in taxes on the bonus.

It’s not a massive amount, but it’s worth factoring into your overall tax liability, especially if you’ve accumulated several bonuses.

 

How to Reduce Taxes on Checking Account Bonuses

While you can’t avoid paying taxes on checking account bonuses entirely, you can minimize your overall tax liability using these strategies:

1. Offset Interest Income with Tax Deductions

If you have deductible expenses like mortgage interest, student loan interest, or business expenses, they can help offset the additional taxable income.

2. Consider Tax-Advantaged Accounts

If you’re earning significant bonuses, consider putting more money into a 401(k) or IRA to reduce your taxable income.

3. Bundle Bonuses into Lower-Income Years

If you’re planning a temporary reduction in income (such as retirement or a sabbatical), consider earning checking account bonuses during those years when your tax bracket is lower.

4. Use the Money Wisely

While you can’t avoid taxes, you can make the most of the bonus by reinvesting it into tax-efficient accounts, like an HSA or a Roth IRA.

 

Be Smart About Reporting Checking Account Bonuses

Getting a bank bonus is a great way to earn some extra cash, but don’t let tax season catch you off guard. If you’ve earned a checking account bonus, make sure you report it correctly to stay in compliance with IRS rules.

Key Takeaways:

✔ Checking account bonuses are taxable as interest income. 

✔ Banks issue Form 1099-INT if total interest (including bonuses) exceeds $10. 

✔ Report the income on Line 2b of Form 1040 (or Schedule B if needed). 

✔ Stay organized—track multiple bank bonuses to avoid mistakes. 

✔ Use tax deductions and tax-advantaged accounts to offset your tax bill.

It’s easy to stay compliant when you know the rules. A little preparation now can save you from a tax headache later! Happy banking—and happy tax filing!