7918 / Are “gifts” received from a financial institution for opening a savings account or making a time deposit taxed?
Generally, yes. The fair market value of any gift (or premium) received by a depositor from a financial institution as an incentive to open a savings account or to make a time deposit is interest income that must be reported for the year in which it is received. Typically such amounts will be shown on the individual’s Form 1099-INT from the institution, along with interest paid on the account.1 This is true whether the “gift” is a household appliance, automobile, cash, or other merchandise.
However, certain non-cash inducements provided by a financial institution to a depositor to open, or add to, an account will be treated as de minimis premiums. A non-cash inducement that does not have a value in excess of (1) $10 for a deposit of less than $5,000; or (2) $20 for a deposit of $5,000 or more will be treated as a de minimis premium. The cost to the financial institution of the premium is used in determining whether the dollar limitations are met. For administrative convenience, the Service will not require a depositor who receives a de minimis premium to treat the value of the premium as includible in gross income. In addition, the Service will not require the depositor to reduce the basis in the account by the de minimis premium. Furthermore, the Service will not require a financial institution that provides a de minimis premium to treat it as interest for purposes of reporting interest income.2
If the financial institution gives merchandise to an individual, other than an employee, who induces another person to open a savings account or make a time deposit, the fair market value of the “gift” is includable in gross income of that individual rather than that of the depositor.3 Presumably, such income is not “interest” since it is not paid as compensation for the use of the recipient’s money.