interest earned or bonus?

Posted By: beegee

interest earned or bonus? - 02/25/05 05:23 PM

We are going to offer a consumer checking account with the following feature:

$5 for each new ACH set up during first 90 days of account opening date.

What issues do I need to be aware of?
Posted By: rlcarey

Re: interest earned or bonus? - 02/25/05 05:37 PM

If they set up 120 of them you trigger the 1099MISC reporting thresholds
Posted By: beegee

Re: interest earned or bonus? - 02/25/05 05:40 PM

This will be an interest bearing account and I was thinking that we had to report this as interest to the IRS if it greater than $10 - am I off-base?
Posted By: rlcarey

Re: interest earned or bonus? - 02/25/05 06:26 PM

The IRS defines the term “interest” to mean amounts paid for the use or forbearance of money, which includes amounts, whether or not designated as interest, paid on savings accounts and other deposit arrangements.

IMHO - A payment for establishing an ACH transaction does not meet that threshold.
Posted By: David Dickinson

Re: interest earned or bonus? - 02/28/05 07:57 PM

Quote:

This will be an interest bearing account and I was thinking that we had to report this as interest to the IRS if it greater than $10 - am I off-base?



Just a technicality, but I thought I would throw this out: the 1099 rules are NOT trigger by interest of more than $10. They are triggered if the interest is $10 or more.
Posted By: beegee

Re: interest earned or bonus? - 02/28/05 11:16 PM

Just want to be sure I understand because this is contrary to what my understanding is -

if we pay, say $25, on ACH sign ups then we have no requirements to the customer to either disclose this as a bonus or report to the IRS as interest.
Posted By: rlcarey

Re: interest earned or bonus? - 03/01/05 02:40 AM

That is correct, but you have to aggregate the $25 with all other payments classified as miscellaneous income to the customer for the year and report on a 1099MISC if that figures reaches $600.