How to file 1099-MISC for Chase Credit Card Referral Bonus

[razor5]

I referred my friends and family to Chase Credit card and received referral bonus. This triggered 1099-MISC being issued to me for the amount I earned as referral bonus. I am trying to report this in TurboTax in 1099-MISC section.

The 1099-MISC issues has the referral bonus amount on box 3 "Other Income". When I put this details in the TurboTax it ends up generating form for business income too and it's schedule. Then I stumbled across this post.

Which says the to put "SPIFF" and "This was a manufacturer's incentive payment" in details. Doing this does not generate business income forms and I will like to confirm this is the right way report this. Specifically that credit card referral bonus should be marked as "This was a manufacturer's incentive payment".

Also, my marginal tax rate for 2023 in TurboTax is ~22% but this 1099-MISC income gets taxed higher as it increases my federal taxes more than ~22%. Is this expected or am I doing something wrong?

Thanks.

[IsabellaG]

Yes, you can check that this is a "manufacturer's incentive" in the TurboTax screen that asks for uncommon situations. There is no checkbox for your specific payment, but the interview screen is there to determine how the income is reported, and checking  manufacturer's incentive will ensure that the income is reported as "Other Income from box 3 of 1099-Misc" on your tax return. There is no specific designation for "manufacturer's incentive" on the tax return. This is simply an interview question.

As an alternative, you could check None of these apply, and you'll be asked a series of follow-up questions. You'd reply that it doesn't involve work like my main job, that you got it in 2023, and that it did not involve an intent to earn money (as opposed to being a business of yours). If you do it that way, you get the same result. The income is reported as "Other Income from box 3 of 1099-Misc" and winds up on line 8 of your Form 1040. 

Neither approach is incorrect, and both allow you to prepare an accurate return.

As far as your tax rate is concerned, 1099-MISC other income is not taxed at a different rate than other ordinary income. I would make sure that this income is not still being treated as business income, in which case you would be adding Self Employment Tax to your regular income tax. 

If you are using TurboTax Online, follow the steps here to preview your 1040. Check to make sure that there is no entry on line 23 for Other Taxes.

If you are using a Desktop TurboTax product, follow these instructions. 

You may have to delete that 1099-MISC and re-enter it to make sure that you are reporting the income correctly.

[razor5]

Thank you I deleted and refilled with SPIFF approach itself. I see that the federal tax increases and I am paying 33.437% on 1600 misc referral income. Whereas my current year effective tax rate stated on Turbo Tax forms view under Two year comparison is only 20.73%. Shouldn't this misc income of 1600 also be taxed with 20.73? My AGI is 457k and taxable income is 429k

@IsabellaG 

[baldietax]

if your taxable income is in the 400s then you are going to be paying higher tax rate on any ordinary income you add to it (see the IRS tax table ranges).  That 20.73% is some average rate across all your income given the different tiers/rates, qualified div, cap gains rates etc.

[MonikaK1]

Yes, if you add more ordinary income, it will appear to be taxed at your highest marginal rate. The marginal tax rate is the amount of additional tax paid for every additional dollar earned as income. The average tax rate is the total tax paid divided by total income earned.

A blended tax rate, also known as the effective tax rate, is derived from a number of factors. The effective tax rate for individuals is the average rate at which their earned income, such as wages, and unearned income, such as stock dividends, are taxed. If you received income from a variety of things like stocks and bonds, interest, dividends, or self-employment, they may all play a role in determining your blended tax rate. See this thread for another discussion of this issue.

For Federal income taxes, the tax rate brackets for 2023 are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. To see how the tax brackets apply to you for this year, and for a tool to determine your marginal (the highest part of your income) tax rate, see here.

Also, note that taxes are often calculated using a different method than the tax tables. For example, if you have capital gains, the tax on those is calculated at the capital gain rate for your income level. If you are self-employed, you may have self-employment taxes in addition to income taxes.

You can preview your return before filing to find out how your taxes were calculated. See here for details.