Surprise! American Express is sending 1099's for referral bonuses! If you referred friends and earned bonus points from your American Express cards, get ready to pay taxes on your referral points.
Many other reports are out already: Doc, OMAAT, MilesTalk, ViewFromTheWing, TravelCodex, and flyertalk. According to the Doc, Chase did something similar in the past then retracted their 1099s for referrals so it may be good to hold off on filing your taxes for now.
How is Amex Valuing Points on the 1099?
|Type of Referral Bonus||Value/Point|
|Amex Membership Rewards||$0.01|
|SPG Amex Referrals (Marriott points)||$0.0033|
I confirmed the above values based on the 1099 tax forms vs referral points earned and also via Amex chat support. Several sites are still incorrectly reporting a value of 1.25 cent per Hilton Point (Doc reported initially then later revised) but it really should be about half that as per the table above. That, however, is still too rich for Hilton points in my opinion. I just checked some Florida hotels and I'm only able to get slightly than $0.004/point so how did they come up with such a high value for Hilton points?
Are Referral Bonuses Really Taxable?
Possibly… according to the terms right on the Amex Referral Terms. This is for the Hilton Amex Aspire and the rest should be the same. Amex also confirmed they only send a 1099 when the value is $600 or more.
The value of the Referral Bonus may be taxable income to you, and we may be required to send you a Form 1099-MISC and file it with the IRS. You are responsible for any federal or state taxes resulting from the Referral Bonus. Please consult your tax advisor if you have questions about the tax treatment of a Referral Bonus.
I have reports from some people who have earned referral bonuses and have not yet received tax forms (I presume because they are under the $600 threshold). That could change in the coming days if a tax form arrives in the mail.
Should Referral Bonuses be Taxable?
I'm not a tax professional so this is just my opinion. I think it's fair to say that anyone in the points hobby would prefer not paying taxes on points. I ponder this: If people get taxed on referral points as “income”, then can they spend this “income” and write it off as a business expense as well?
Is it Worth Referring Friends For Referral Bonuses?
It depends on the values assigned to the points. In general, after what I'm seeing here, I may not bother with the Amex referral programs again (especially Hilton!). On top of the taxes to be paid, there's extra 1099 tax forms to waste my time as well as my accountant's time on.
When I first saw the values on other websites I was very surprised. Now that I see the actual 1099s with lower values per point, they seem more palatable. I still don't like it but it's probably not worth fighting over. I routinely am able to use SPG points for more than 1 penny (now $0.0033 per Marriott point) and Amex points for over 1 penny. Hilton seems way too high at $0.0067 per point
Should I Dispute the 1099 Values?
I called American Express to dispute the value of the Hilton points as they are much too high. If I can't redeem the points at that rate, why should I pay taxes at that rate? I encourage you to call and complain as well. Just call the number on the back of your card and get a representative on the line. They will tell you that the 0.0067 value is fixed. They could not tell me how they came up with that value nor how I can redeem for that value. The rep even asked if I had called Hilton. Now what does Hilton have to say about a 1099 issued by Amex? Clearly nothing. The rep tried telling me they are required by law to issue a 1099 for anyone earning more than $600. My answer is there is no federal law requiring Hilton points to be valued at 0.0067, so again how does Amex come up with this value that I cannot get myself.
See Gary's post: How to dispute the 1099 value with the IRS
Talk to your tax professional (I'm not one, so don't take tax advice from me). It seems the main gripe would be with the Hilton point values. The maximum referral bonus would be 80,000 points x 0.0067 = $536. Somehow, one friend earned a little bit more referral points and got $550 on their 1099.
Hopefully Amex will retract the 1099's! Did you get a 1099 for your Amex Referrals? What do you think?