The allure of bank bonuses can be tempting, with financial institutions offering hundreds of dollars for simply opening a new account. However, it’s important to remember that these bonuses are taxable as income, and failing to plan ahead could result in a surprise tax bill.

Bank bonuses typically range from $100 to $500 for personal deposit accounts like checking and savings accounts. New customers may qualify by meeting deposit or balance requirements or other criteria set by the bank. When you receive a bank bonus, the financial institution may send you a Form 1099-INT or 1099-MISC for tax reporting purposes.

The way the bonus is taxed depends on your income tax bracket. As your income increases, you may enter a higher tax bracket, but you only pay the higher tax rate on the income within that bracket. It’s essential to set aside 10% to 35% of your bonus amount to cover the resulting tax bill.

When it comes to reporting a bank bonus to the IRS, most banks will send you a Form 1099-INT or 1099-MISC with the bonus amount listed. However, if you don’t receive a form, you’re still required to report the bonus as income on your tax return.

In conclusion, while bank bonuses can be a lucrative way to earn extra money, it’s crucial to be aware of the tax implications. By setting aside a portion of your bonus to cover taxes, you can enjoy the financial rewards without any surprises come tax time.