The Amex 1099 Back Pedal

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As you may know, there has recently been some uproar (or at least moderate roaring) in the miles and points community about the 1099’s that were recently issued by both Citibank and American Express.  The Citibank 1099’s were issued to those who received AAdvantage miles via signing up for a checking or savings account.  Citibiank valued the miles at 2.5 cents a piece, which is a bit high to begin with considering many miles get redeemed at a much lower rate.  What’s worse is while this info was reported to be in the Terms and Conditions, most people were very surprised when the 1099’s came, so I don’t know whether the info wasn’t clear or whether people just didn’t take the time to read what they were signing up for.  Citibank did not send out 1099’s to those who got their miles via credit card sign-ups.

American Express sent out 1099’s to some who via the Gift Chain promotion won prizes that totaled at least $600.  Again, the main problems here were the lack of advance warning that this may happen if you participate in this promo, and the way in which the prizes were valued.  Specifically, Amex valued ShopRunner Memberships at $79.  This was a very common prize to win, but many people (myself included) never even activated their free ShopRunner membership, yet the $79 “value” was included on the 1099 form that was to be filed with the IRS.  Thus, you had to pay taxes on the prize that you never even claimed.

However, it seems that there has been a 1099 Back Pedal of sorts by Amex.  Today an email was sent out that said:

Dear Cardmember,

We are writing to let you know we are reissuing a 1099 form to you for the value of the gifts you received through the American Express Gift Chain promotion.   As a courtesy, this new 1099 form will not include the value of any ShopRunner memberships or any Next Purchase statement credits you received if you haven’t redeemed them. You will receive the form within the next two weeks. If you don’t receive the new 1099 form in this timeframe please call the number on the back of your Card.

If you have already used the original 1099 form to file your 2011 tax return please contact a tax professional for assistance.

Thank you for your Cardmembership.
Sincerely,
American Express Customer Care

(Thanks @nmorlock42 for forwarding me this email!)

Okay, so it is good news for those who haven’t filed taxes, and didn’t claim their unwanted ShopRunner memberships, but it comes a bit late for those who already filed and/or redeemed or gave away unwanted ShopRunner memberships.  At the very least, hopefully this at least helps set the stage for how future Amex promotions will run.

What do you think of the Amex 1099 back pedal?

Oh, and while we are on the topic of taxes, look for a post tomorrow about earning miles and points when you file your taxes.  Fun, fun!

Comments

  1. “What’s worse is there was no warning that they planned to do this, so people didn’t have a chance to make an informed decision when getting checking and savings accounts.”

    For what it’s worth, the terms and conditions of the Citi checking offers did disclose the possibility of tax liability. And they’ve been sending out 1099s on bank account signup bonuses for a few years, so this wasn’t a new issue.

  2. 1) 79 x 35 % = $ 2.84 income tax (assuming your tax bracket is 35 %).

    2) It is always assumed that if you make money, you have to report income and the amount is subject to tax. IRS said ignorance is not an excuse.

    3) Anyone should know if you deal with big name corportation, they always have legal and accounting dept which interpret filing requirements. AMEX is just doing the job reporting anyone who earned over 600.

    4) I’m happy AMEX recalculate the “shoprunner” amount. I think it’s fair.

    5) Anyone who has filed tax return can file a 1040R. It’s not too big of a deal. But for $ 2.84, it’s so insignificant that it’s not worth it.

    6) Many brokerage houses are still sending out 1099, and from past experience, TD ameritrade has been sending out corrected 1099 even on the 1st of March. So it’s better wait.

    7) I doubt many have filed their tax return !!!

  3. .
    As Gary mentioned, Citi has been doing this for a few years so I am not sure how you can say there was no warning. And any time you win something it is taxable, be it a free cruise, car, miles, or the like.
    .
    Just because there is no requirement that businesses report such things under a certain dollar amount does not mean that you don’t owe taxes, just like you owe sales taxes on any online purchase regardless of whether or not the seller collected tax.
    .
    Ike

  4. @Gary, good to know. I didn’t participate in that myself, but I guess I am confused then why there was seemingly so much surprise from people who received the 1099’s.

    @Joe, yes, I have to file one myself (though not for this), but that is not near as ideal as just having the correct info the first time.

    @Jo, I think it is understandable to think people weren’t expecting to pay taxes for multiple ShopRunner “wins”. However, a couple ShopRunner wins could get you closer to the $600 amount pretty quickly. I’m glad they reversed their decision on that, but it is a bigger PITA to file an amended return than it is to just get it right the first time….at least in my opinion. 😉 I don’t know how many people have filed, but I am sure at least some have. Still a good thing they are changing their stance now – better late than never!

  5. What am I missing? You could only get 1 ShopRunner prize… unless you cheated and registered more than 1 AMEX card for the promo, no?

  6. That wasn’t cheating. I specifically asked AmEx when the promotion was going on and they said you could register as many AmEx cards as you had. Subsequent to that I’ve had my Gift Chain winnings reviewed repeatedly by AmEx (all the way up the hierarchy as part of my 1099 complaint) and none of them have ever said anything about using more than one card.

    For whoever did the math up-thread, a more reasonable estimate is a 25% marginal tax rate and at that rate it’s an extra tax of $79 X .25 ~ $20 per shop runner membership that was won. For some people that was quite a few since it was the first prize generally given out per AmEx. Another common prize was a statement credit that was only given on a future purchase at that retailer but yet a tax liability was issued regardless of whether a future purchase was made.

    Finally, while filing an amended tax return isn’t the longest process in the world, it’s an extra 30 minutes out of one’s life that was not really necessary if AmEx had done things properly the first time. Plus, a brief google search shows quite a few tax professionals saying that amending a return leads to an increased chance of an audit (especially when said return leads to a larger refund). So thank you for that, AmEx.

  7. TPG made a very strong point against the taxation of miles (and it applies to any non-monetary “win”), and that is that the recipient doesn’t actually own them (the airline does), and the value can be changed, expired, or cancelled at their whim. It’s rather hard to assess a tax on something with so transient and unpredictable a value.

  8. From the official T&C:

    https://giftchain.amexnetwork.com/rules

    “Limit of one (1) registration per person/Eligible Card; if it is discovered that you have registered or attempted to register more than once or have attempted to register/participate multiple times using multiple identities or email addresses, all of your entries will be declared null and void, and any Gift you might have been entitled to receive will not be distributed. Registration will be closed after 250,000 registrations have been received.”

  9. I received 20k United Miles in 2010 from Citibank for opening a Savings Account and in January 2011, I received a 1099-MISC from Citibank reporting an amount on Line 3) Other Income: $650.
    That would make the reported value of the Mile in 2010 at 0.0325.
    Anyone else received a 1099-MISC for miles received in 2010?

  10. “but it comes a bit late for those who already filed”
    Not really – just file a quick amended return and be done with it. Though it may not be worth the time/effort for some to save just a few bucks.

  11. It is unfortunate that some people gave away extra ShopRunner memberships and now have to pay the taxes on those. I know I’m one the people who benefited from a gift membership.

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