Banks try to attract all kinds of customers with gifts.
One of the metrics used to measure performance and growth in a bank tends to be how many new accounts are opened in a given time period. Since such activity involves a significant amount of marketing, banks for decades have incorporated gifts as an enticement for new customers. In modern times such gifts have varied from outright monetary bonuses after specific criteria are met to traditional gifts such as digital iPods. Regardless of the gift type, all promotional ventures are aimed at creating new business and new accounts. However, some gifts have more issues than others.
Product Gifts
Banks have provided product gifts to attract customers for years. In the 1970s it might have been a brand new toaster. Today, such gifts can be digital products or small, practical tools. Small gifts with a fair market value under $10 are not typically reportable on taxes. Instead, the IRS treats them as marketing and promotions expenses for the bank. When an item does exceed the value limit by the IRS, such as with an iPod, the product becomes reportable for both the bank and recipient.
Cash Gifts
In modern times one of the most attractive promotional gifts has been the new account cash bonus. This gift is provided as a money deposit in the account after certain rules have been met. It can be as simple as being a valid, approved applicant to requiring certain commitments occur on the part of the customer. When approved, the cash then appears in the account and can be spent or saved as the account holder desires. For tax purposes, cash gifts are treated as basic interest on the account. A recipient is then expected to report the funds as "other income" when it comes time to fill out a tax return for that tax year.
Hybrid Gifts
Hybrid gifts typically involve a promotional item that is not cash but acts like it. Fuel cards are a common example --- $50 and $100 fuel cards which can be swiped at a gas station of choice have been a common promotional item for new customers from some banks, particularly during times of high gas prices. While not cash, a fuel card or similar gift has monetary value. As a result, the recipient is still expected to report the amount received as taxable income.
Tax Reporting Liabilities
Free is never quite free in the banking business. As noted earlier, if the bank gift is in the form of cash or similar then the bank technically needs to treat the deposit as interest on an account. The bank must report the monetary gift at the end of the tax year to the IRS if over $10 total, and the account holder will see the amount on an IRS Form 1099 INT for his own tax filing uses. Failure to report this income benefit would incur additional penalties in the form of tax interest and fines on either the bank or account holder. Product gifts are reportable as well if over $10 in value per item. Both types are taxed at the total income rate for the recipient, depending on where his adjusted gross income lands on the IRS tax tables after accounting for deductions.
Gift Restrictions
To make sure that gifts don't just walk out the door with savvy customers closing and opening new accounts repeatedly, many banks tie promotional gifts to account requirements. These could include a minimum opening deposit amount, requiring the account holder to participate in automatic payroll deposit or to keep the account open for a minimum number of days, usually 90 days at least. If the customer doesn't meet the criteria by a date certain, the bank doesn't provide the offered gift. Such programs have cut down on bank promotional losses by forcing customers to commit more to the bank than just filling out an application.
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