We are in the process of establishing a new account product that will refund ATM fees. The paragraph below was in the vendor packet. Is anyone providing 1099's? Thanks.

IRS Reporting
Incentives paid to account holders are required to be reported to the IRS on Form 1099. There are different IRS Forms 1099 depending on the nature of the payment made. Form 1099-INT is filed with the IRS to report interest payments that aggregate to $10 or more in a calendar year. Form 1099-MISC is filed with the IRS to report miscellaneous payments that aggregate to $600 or more in a calendar year. The IRS has not issued formal guidance on how to properly disclose incentives that are paid to deposit account holders. However, the IRS has notified us orally that incentives that are paid on interest bearing accounts should be reported on IRS Form 1099-INT if the filing threshold is met, and incentives paid on non-interest bearing accounts should be reported on IRS Form 1099-MISC if the filing threshold is met. We understand that some core processing systems have adopted procedures that allow financial institutions to add ATM fee reimbursements to the system-generated IRS Forms 1099. We recommend that you consult with your core processing system to determine how best to reflect ATM fee reimbursements.

I've seen a memo from a major EDP vendor (perhaps yours) saying that it is definitely reportable on a 1099MISC. However, they did not cite anything in support of that conclusion. My read was it was a simple CYA memo on their behalf. The fact that yours says "should report" rather than "must report" generates the same reaction from me.

I'm curious as to whether you will get any responses from banks that say they do it, but either way I suggest you tell your vendor you want a citation from IRS resources that says it's required. ("Oral notification" from the IRS is meaningless and the distinction between interest bearing and non interest bearing accounts is senseless.)

The debate on this point is more than 5 years old. So, if the IRS is interested, they would have put something in writing by now.

Thank you so much for taking time to respond. I agree this topic has been out there for awhile but with so many regulatory changes happening I needed additional insight.

I agree with Ken, I would require your vendor to provide you with a cite from an IRS resource.

I would not consider the refund of a fee paid by the customer to be an incentive. Nor are refunds of amounts paid generally considered income. Think about it, if that were the case then anytime you submitted an expense report to your employer to be reimbursed for a valid business expense, the reimbursement would be considered income.

What if you had a program that refunds ATM fees if the customer meets all program requirements?

Same answer for the same reasons.

We cap our ATM refunds at $40 @ month, so the refund amount will never exceed $600. No 1099MISC to deal with.

That's understandable. It also helps to illustrate the point I made about the verbal advice attributed to the IRS being "senseless."

Following your regimen on a non interest bearing account, if you refunded $480, no 1099MISC would be due. However, if you did that on an interest bearing account, you would owe a 1099INT for $480 + the amount of interest paid.

One of the reasons why the IRS would not put that in writing is because it's dumb. The second is that there is no rationale that supports the rebate of a fee (that had no tax effects to begin with) as being taxable income to the recipient.

However, the IRS has notified us orally that incentives that are paid on interest bearing accounts should be reported on IRS Form 1099-INT if the filing threshold is met, and incentives paid on non-interest bearing accounts should be reported on IRS Form 1099-MISC if the filing threshold is met.

That is absolute hogwash. Who from the IRS, some first year intern? Either this meets the definition of interest or it does not. Whether the underlying account earns interest or not, if it exceeds the reporting threshold for 1099INT reporting, it would be reportable. And there is plenty of guidance on that subject.

Talk to your own tax attorney and as always, take any guidance on such subjects from vendors with a big grain of salt.

Even under the IRS's rules, interest is payment for the use of a depositor's money over time. It also includes an incentive payment to add to or maintain a deposit (much as the old Reg Q definition). But it doesn't include payment for use of an ATM or reimbursements of a fee paid to the bank or to another ATM-deployer. If there is a reporting requirement that applies to ATM fee reimbursements, it would fall under the 1099-MISC rules, and be triggered at the $600 per year level.