People with good credit scores are getting deluged with preapproved offers for credit cards, but they could come with a gotcha.
For those with scores typically between 740 and 760 or higher, some of those offers have included cash for activating a credit card, while others reward you with a boatload of frequent flyer miles upfront when you open a card.
Two of the producers on my show, Joel and Kim, both got a Chase credit card offer that came with $300 cash just for opening the card. Citibank, meanwhile, has been doing 25,000 frequent flier miles as a bonus for getting your business when you open a checking or savings account.
But here’s the rub: The banks are now reporting your bonus to the IRS as taxable income.
The Los Angeles Times reports Citibank is issuing 1099s to those who took the mileage bonus. Unfortunately, they give the miles an overly generous rate of 2.5 cents per mile, while the industry standard is around 1.1 cents. So somebody who got the 25,000 miles bonus instantly has $625 of extra taxable income!
Joel and Kim are better off because at least they’ll only be taxed on the $300 cash they got to open their accounts.
One final thought: Always keep any promotional offer you get in the mail when you open an account of any kind. That protects you if the bank suddenly gets amnesia about the terms of the offer. If you’re getting an offer over the phone, have them email you a confirmation of the terms for the same reason.