Bank account for freshman?

<p>The $600 threshold is for non employee compensation. Banks have to issue a 1099INT for any interest over $10. But I don’t agree that they issue one for reimbursed fees. That’s not income, that’s a reimbursement. If your bank is issuing one, you should speak to them about getting a new accountant. They do issue one for interest, or other additions to your account. For example, $25 for opening a new account.</p>

<p>3bm103 - no, I’m a tax advisor, so I know what I’m talking about. $10 is for interest from a bank account. Rebates are part of the $600 threshold. The IRS is very clear about this - rebates are only non-taxable if they are used to reduce the price of a purchase. They are not considered a reimbursement. The IRS issued guidance on this last year in February after Citibank issues 1099’s for airline miles given when customers opened new accounts - not exactly the same issue, but their guidance covered all sorts of bank payments, including rebates for ATM fees.</p>

<p>I no longer have the link to the IRS guidance, but there here are a couple of news articles discussing it:</p>

<p>[Reward</a> Point ‘Gifts’ are Taxable, Says the IRS | Fox Business](<a href=“http://www.foxbusiness.com/personal-finance/2012/01/31/reward-point-gifts-are-taxable-says-irs/]Reward”>http://www.foxbusiness.com/personal-finance/2012/01/31/reward-point-gifts-are-taxable-says-irs/)
[Rebates:</a> Sometimes they are taxable, other times not - Baltimore Sun](<a href=“Consumers unhappy to find some rebates are taxable”>Consumers unhappy to find some rebates are taxable)</p>

<p>Don’t rely on the fact that you don’t get a tax document to mean it’s not taxable.</p>

<p>CTScoutmom–you are talking about two separate things. The rebate or the free airline miles is “income” in the sense that you did not pay anything for those miles yet you got cash or cash equivalent for signing up for the card. For the ATM fees, you PAID that fee out of your pocket and the bank is just paying you back for those fees since you can’t decline to pay the fee at the ATM. That would be like saying that you need to issue a 1099 if you paid for lunch for a friend because he forgot his wallet and he paid you back the next day. The reimbursement is not a rebate. A “tax advisor” with what kind of background??</p>

<p>CTScoutmom – I am a CPA with extensive personal income tax and banking experience and bank “incentives” are drastically different than fee “rebates”. Any payment from a bank relating to an interest bearing or demand account would show up in a 1099-INT subject to the $10 limitation. Whether it is called “interest” or not. 3bm103 is correct the $600 threshold applies only to miscellaneous income which would include “rebates” received from banks or non-banks that do not relate to bank accounts. Unless you can provide me a tax court case, code section, or treasury regulation I would have to strongly disagree.</p>

<p>If my D was on track to incur $600 in ATM fees (at $3/pop that would be 200 trips a year to the ATM machine) I’d be sending her a Harry Potter Howler OwlGram and sending her card thru the shredding machine as soon as I got my hands on it. So I think the risk, to me at least, and I think most people, is remote.</p>

<p>Yet, as a geeky CPA I feel the need to succumb to my intellectual curiosity and further pursue an issue that has no real possibility of having any affect on me whatsoever :).</p>

<p>I found a discussion forum on bankers online where bankers were asking this very question among themselves. No one had a definitive answer, altho the following post was somewhat informative (dated January 2010): </p>

<p>"I am sharing the following from IRS email Tax Assistance (provided to me by a colleague at another bank who raised the issue with the IRS again this year):</p>

<p>Your Question Was:
What is the tax law governing the treatment of ATM surcharge refunds credited back to the customer’s account by the institution that owns the bank-customer account relationship? For example: John Smith has a checking account and ATM card at ABC Bank. He goes to 1st Bank of America and withdrawals $20.00. 1st Bank of America charges John Smith a $2.00 fee for that transaction (since he is not a customer). Therefore, the total withdrawal amount equals $22.00. However, ABC Bank credits the customer $2.00 back into his checking account for the ATM usage. Is the bank required to show the $2.00 credited back to the customer on any IRS tax form sent to the customer? PLEASE INCLUDE REFERENCES TO SPECIFIC TAX LAW WHEN RESPONDING TO THIS QUESTION.</p>

<p>The Answer To Your Question Is:
The refund you describe is being made by your bank on a transaction performed by another bank and as such would not be treated as a rebate for information returns reporting purposes. We are not aware of any tax law currently available that addresses your specific question, and this location is not authorized to make such determinations. We recommend that you contact the Office of Chief Counsel, Internal Revenue Service, and request a Letter Ruling on your specific situation. Please see Internal Revenue Bulletin (IRB) 2009-1 for information on requesting a Letter Ruling. IRBs are available at [Internal</a> Revenue Service](<a href=“http://www.irs.gov%5DInternal”>http://www.irs.gov).</p>

<p>Ms. Miller
ID# 0269864"</p>

<p>So the IRS said its not a rebate (and therefore not reportable) but they stopped short of saying it was reportable (and taxable). </p>

<p>The problem with taxable income is that the IRS considers all income to be taxable unless a specific exemption exists that says that particular type of income is not taxable. </p>

<p>I don’t think CTScoutMom is off base in raising this as an issue. It appears that there is uncertainty out there (at least in the banking world) as to the correct treatment. But I think the issue is unlikely to affect the vast majority of us, since we’re not likely to cross the $600 threshold, and even if we did, I doubt that most banks have started to treat this as 1099 reportable (and probably won’t until the IRS says they have to).</p>

<p>Ok, time to go and get my next Howler Owlgram prepped. I love those things.</p>

<p>I have seen this reported to clients, on 1099-misc forms issued by their banks (TD Bank and Peoples United Bank, I don’t recall the third bank - the TD Bank one I remember because it happened 2 years in a row, and I convinced that client to stop going to “foreign” ATMs). Again, I can no longer find the link the the IRS guidance that was given in February (so more recent than the 2010 response from the IRS).</p>

<p>This would not be a rebate, though that is what some banks call it. It also is not a waiver of the fees, which would not be taxable. The issue is that the fees are in fact imposed by another bank, and your bank is paying them for you - they are not getting the other bank to waive the fees. Thus as far as the IRS is concerned, it is no different than if your bank gave you $3 (or whatever the fee is), which you used to pay the other bank. This transaction would be covered by a 1099-Misc. It is not a transaction that is exempted by the IRS, so as they have stated, it is presumed to be a taxable transaction.</p>

<p>What about a “rebate” of 2% for all purchases on a credit card? Is that a “rebate” or “income?” In our case, it amounts to a fairly hefty sum (4 figures).</p>