Bank Account Bonus Taxes and the IRS Reporting Thresholds
Bank account sign-up bonuses are taxable because the Internal Revenue Service (IRS) treats a cash bonus as interest income. Gifts or services for opening an account also count as interest once their value exceeds $10 on deposits under $5,000, or $20 on deposits of $5,000 or more.
At The Modern Wallet, we suggest doing the same math for every bonus before opening an account: subtract taxes, fees, and the interest the parked money could have earned elsewhere from the bonus. Bank account bonus taxes follow your own federal bracket, which you can find in our 2026 tax bracket guide.
Whether Bank Account Bonuses Are Taxable
Bank account bonuses are taxable as interest income in the year the money is available to you. IRS Publication 550 sets two thresholds for gifts or services given for opening an account. For deposits of less than $5,000, gifts or services valued at more than $10 must be reported as interest.
For deposits of $5,000 or more, the line moves to gifts or services valued at more than $20. A cash bonus is treated as interest income. IRS Topic 403 lists interest on bank accounts, money market accounts, and certificates of deposit (CDs) as taxable interest. It also says interest is generally taxable as ordinary income, so a bonus is taxed at the rate for your bracket.
The IRS Gift Thresholds in Three Hypothetical Cases
The gift thresholds depend on two numbers: the size of your deposit and the value of the gift. These three hypothetical cases use the exact Publication 550 wording.
- A $4,000 deposit with a gift worth $10: the rule covers gifts worth more than $10, so a gift worth exactly $10 is not over the line and is not reported as interest.
- A $4,000 deposit with a gift worth $12: the gift is above $10, so it is reported as interest.
- A $5,000 deposit: the threshold rises to $20, so a gift has to be worth more than $20 before it is reported as interest.
The first case turns on the word "more" in Publication 550. A gift that sits exactly at $10 on a deposit under $5,000 stays under the rule. Before you decide which side of the line a gift falls on, find the deposit amount and the stated gift value in the offer terms.
How Bank Account Bonus Taxes Show Up on Form 1099-INT
A bonus of $10 or more should arrive on a Form 1099-INT, because Topic 403 says payers should send that form for interest of $10 or more. The Form 1099-INT instructions add that financial institutions include amounts of $10 or more paid or credited, whether or not designated as interest.
A missing form does not remove the tax. Topic 403 says you must report all taxable and tax-exempt interest on your federal return, even if you never receive a Form 1099-INT.
Timing follows the money. Topic 403 says interest is generally taxable in the year it is available, so a bonus credited in one year belongs on that year's return. Taxable interest may require estimated tax payments.
The same rules apply to ordinary account interest. Our guide to whether savings and CD interest is taxable walks through those accounts.
The Tax on a Hypothetical $300 Cash Bonus
A $300 cash bonus taxed at a 22% federal rate costs $66 in federal tax and leaves $234. The 22% rate is a hypothetical example. Your own rate depends on your bracket.
The math is the bonus times your rate: $300 × 22% = $66, and $300 − $66 = $234. Swap in your own rate from the 2026 tax bracket guide to get your figure.
Carry the after-tax number into the worth-it test below. In this example that number is $234, because $66 of the $300 goes to federal tax.
Conditions Attached to a Bank Bonus Offer
A bank account bonus works as a payment for opening an account and meeting the conditions in the offer terms. Those terms can include a minimum balance, a direct deposit requirement, and a time you must hold the funds in the account. Each offer sets its own terms, and the terms change, so we list no offer here as current.
Read the fee schedule next to the bonus terms. Subtract any fees the account charges from the after-tax bonus. Fees can cancel the gain.
Write down the start and end dates of the holding period. Those dates set how many months your money sits in this account, and those months are the input for the lost-interest line of the test.
A Worth-It Test for Bank Account Bonus Taxes and Fees
A bank bonus is worth taking when the bonus minus tax, minus fees, minus lost interest on the parked money comes out above zero. Written as a formula: net gain = bonus − federal tax − fees − lost interest.
Start with the after-tax amount. In the hypothetical case, a $300 bonus at 22% leaves $234. From that $234, subtract any fees the account charges during the holding period, then subtract the interest the deposit would have earned in another account over the same months.
To estimate lost interest, enter the deposit and the holding period into our high-yield savings calculator at the rate a competing account pays. You can compare competing accounts in our best high-yield savings accounts roundup, or look at a certificate of deposit.
Keep both sides on the same tax basis. Under Topic 403, the bonus and the interest you give up are both taxable interest. Compare them either before tax or after tax, never one of each.
A Checklist Before Opening a Bonus Account
Answer six questions before you apply for any bonus.
- What minimum deposit or balance do the offer terms require, and can you leave it in the account for the full holding period?
- Is there a direct deposit requirement, and can your paycheck or another deposit meet it?
- How long must you hold the funds, and what is the end date?
- Which fees can the account charge during that period?
- What is the federal tax on the bonus at your own bracket?
- How much interest would the same money earn elsewhere over the same months?
If the answer to the first or second question is no, skip the offer. For the rest, plug your answers into the worth-it formula above.
Who Should Skip a Bank Account Bonus
Skip a bonus if you cannot meet its minimum balance, direct deposit, or holding terms, because those terms are the conditions for getting paid. Skip it too if fees would take most of the after-tax amount.
A bonus also loses when the parked money would earn more interest elsewhere over the holding period than the bonus leaves after tax and fees. Our answer flips toward taking the offer when the numbers move the other way. A lower bracket, no fees, or a short holding period each shrink the subtractions and can push the net gain above zero.
If you are choosing where to open the account, see our credit union vs bank comparison and traditional bank vs online bank comparison. Before you apply, write down the bonus, your bracket, the fees, and the holding period, then run the bank account bonus taxes and lost interest through the worth-it formula.
Frequently asked questions
Will I get a 1099-INT for a bank bonus?
You should get one if the bonus is $10 or more. IRS Topic 403 says payers should send Form 1099-INT for interest of $10 or more, and the Form 1099-INT instructions tell financial institutions to include amounts of $10 or more paid or credited, whether or not designated as interest. If no form arrives, you must report the interest on your federal return anyway.
Are bank bonuses worth it?
A bank bonus is worth it when the bonus minus federal tax, fees, and lost interest on the parked money leaves a number above zero. In a hypothetical case, a $300 bonus at a 22% federal rate leaves $234 after $66 of tax. Any account fees and the interest the money could have earned elsewhere come out of that $234.
Do I owe tax on a bonus under $10?
For a cash bonus, yes. Topic 403 requires you to report all taxable interest on your federal return even when no Form 1099-INT arrives, and payers are only told to send the form for $10 or more. For a gift or service, Publication 550 requires reporting it as interest once it is worth more than $10 on deposits under $5,000, or more than $20 on deposits of $5,000 or more.
What is the catch with bank account bonuses?
The catch sits in the offer terms and the math. Terms can require a minimum balance, direct deposit, and a set time holding the funds, and each offer sets its own. On top of that, the bonus is taxable interest, account fees reduce it, and the money parked to earn it could have earned interest elsewhere.
Are credit union bonuses taxable?
The Form 1099-INT instructions apply to financial institutions and cover amounts of $10 or more paid or credited, whether or not designated as interest. The Publication 550 gift thresholds are written around the size of the deposit.
How do bank account bonuses work?
A bank pays a cash bonus, or gives a gift or service, when you open an account and meet the offer terms, such as a minimum balance, direct deposit, or a holding period. The cash bonus then counts as interest income for tax purposes. A gift counts as interest once it passes the Publication 550 threshold for your deposit size.
Sources
We prioritize primary sources for rules, formulas, rates, limits, and definitions. See our calculator methodology and editorial policy.