Bank account bonuses are taxed as interest, while credit card bonuses you earn by spending aren’t. In the 24% federal bracket and before any state tax, a $300 bank bonus leaves you $228, so figure every bank offer’s after-tax value before you compare it with a card bonus.
Banks advertise the pretax number. Chase’s offer terms, for example, count its checking bonus as interest and say it will be reported on Form 1099-INT.
Any bank that pays you $10 or more in interest has to file that form with the IRS, and the bonus is taxed at your ordinary income rate. You owe the tax even if no form arrives.
Card rewards work differently. Cash back and points you earn by spending count as a rebate on what you bought, not income, and a welcome bonus tied to a spending requirement follows the same logic. The difference is who’s paying for what. A bank pays you for parking money with it, which is what interest is, while a card reward hands back part of a price you already paid. The exceptions are rewards that require no spending, such as a referral bonus or points awarded just for opening the card, which can be taxable.
That difference changes which offer wins. Before any state income tax, the same $300 bonus shrinks to $204 in the 32% federal bracket, and a $200 bonus leaves $152 at 24%. On a no-annual-fee card, a $250 bonus earned on spending you’d do anyway stays $250, more than the $228 or $204 that $300 bank bonus leaves you.
Taxes don’t make bank bonuses a bad deal. They make them smaller than the ad says. So run every bank offer through the same math. Reduce the bonus by your combined federal and state tax rate. Then subtract what the requirements cost you, such as interest you give up on a required balance or a monthly fee you pay until the bonus posts. If the result still beats your other options, open the account.
When the bonus lands, move the part you’ll owe in tax into savings, so next year’s 1099-INT doesn’t turn your windfall into a bill.
Run the after-tax math on each of the best bank promotions and bonus offers.
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