Gift Card Reported as 1099 Int. or 1099 Misc?

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Question:

We are having the following Anniversary Special for one of our Branches. "Open a new "Totally Free Checking Account" (non interest bearing) with a minimum deposit of $100, direct deposit of paycheck and free debit card and we will give you a $25 gift card." Would the $25 gift card be reported as a 1099 Int. or 1099 misc? Why?

Answer:

If the gift card is provided for the opening of the account, it's interest as far as the IRS is concerned. If it's for the use of direct deposit or use of a debit card, it's not interest, but would be subject to the IRS's 1099-MISC rules.

So, if you have customers who are able to get the gift card for opening the account and not signing up for direct deposit or using a gift card, follow the 1099-INT rules. If no one gets a card unless he or she opens the account, uses direct deposit and uses a debit card, follow the 1099-MISC rules.

Note that if the non-interest checking account is a demand deposit, you could have Regulation Q issues if the gift card is for opening the account (and not for the related services).

First published on BankersOnline.com 7/11/11