Just tips:
Bank signup bonuses are taxable income; you will owe taxes on every dollar at your marginal rate. Credit card welcome bonuses are not. The IRS treats card rewards as shopping deductions, not income. A $300 bank bonus in the 24% bracket is worth $228. Calculate the after-tax value before pursuing any offer.
Banks are competing hard for new checking accounts now and the top offers look compelling. Chase is dependent $300. Bank of America offers $200. Ads are everywhere.
What the ads overlook: The IRS classifies bank account bonuses as interest income. Earn any bonus of $10 or more and the bank will send you a 1099-INT at the end of the year. This money is added to your taxable income. If you’re in the 24% bracket, the $300 Chase bonus is actually worth $228. Bank of America’s $200 offer puts $152 in your pocket after taxes.
Credit card sign-up bonuses work differently. Earn 80,000 points worth $800 in travel, or get $200 cash back after reaching a spending threshold, neither of which are taxable. The IRS treats those rewards as deductions for purchases you’ve already made, not as new income. No. 1099. No tax hit. You retain the full advertised value.
Before committing to a bank bonus, do a quick calculation: multiply the bonus amount by your marginal tax rate and subtract. This is your real home. In the 22% bracket, a $300 bonus is $234. In the 32% bracket, you’re keeping $204.
This does not mean that bank bonuses are not worth it. If you’re already looking for a new checking account and can meet the requirements, a reduced bonus is still money you didn’t have before. But it changes how you compare offers. A $300 taxable bank bonus and a $300 credit card welcome bonus are not the same thing.
Always compare on an after-tax basis. The $300 bank note and the $300 credit card note are not playing by the same rules.
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