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Weigh All Factors For Bank Account Sign-Up Bonuses

Have you seen the ads promising a cash reward for opening a new bank account? You may be offered a bonus of $100 or more just for signing up. But be aware that strings are attached.

For starters, promotional giveaways, awards, and prizes are subject to federal and possibly state and local income tax. This applies to everything from bank deposit offers to lottery winnings to cash prizes that accompany Oscar and Grammy awards. (Recent legislation exempts Olympic medal winners from tax.) You'll receive a Form 1099-MISC and must report the income on your tax return.

In other words, if you get $100 from a bank and you're in the 25% tax bracket, you'll owe Uncle Sam $25 on your sign-up bonus.

Consider these other potential drawbacks:

  • You may be charged fees relating to the account. For example, if your balance dips below a minimum amount you might be assessed a monthly fee that eventually could wipe out your one-time bonus.
  • Some banks require direct deposit enrollment before you receive the bonus. If you don't comply within a specified time, you might not receive the bonus at all.
  • The bonus may be rescinded if the account isn't kept open for a specified period of time.

Bottom line: Sign up for an offer only if it otherwise makes sense for you.


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This article was written by a professional financial journalist for McCarthy Asset Management, Inc. and is not intended as legal or investment advice.

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