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Please help me understand if the following two items are taxable or if they should be included at all on the tax report:

  1. Rent deposit. A few years ago, when I moved in my previous apartment I put a deposit of $500. This year, when I moved out, I got the deposit back (exactly the same amount).
  2. ATM fee rebate. My bank will rebate, at the end of the month, any fee that I pay for withdrawing money using other bank's ATMs. (e.g. I withdraw $20 and there is a fee of $2. My account is charged $22 for that withdraw but the bank will give me back $2 at the end of the month)

Thanks!

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  • Hi Jason, welcome to Money.Stackexchange.com!
    – C. Ross
    Dec 7, 2012 at 16:50

5 Answers 5

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No to both. The deposit refund is not taxable, but in states where security must earn interest, that small amount is subject to tax. I just returned a $750 deposit to a tenant, and after a year, it accrued $0.24.

A rebate of fees you pay such as ATM fees is just you getting back your own money. As is "cash back" on credit card purchases. Not taxable.

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  • Is there anything that I need to put on the tax report about the two items?
    – Jason F
    Dec 1, 2012 at 2:20
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    No. A bank will 1099 you for interest that you'd have to claim as income. The landlord should not 1099 you for a return of your own money. Both your examples don't get reported by you at all.
    – JTP - Apologise to Monica ♦
    Dec 1, 2012 at 2:26
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    The requirement to pay interest on the rental deposit is by state law in the US. Each state sets the free period, and the rate. In Virginia it was more than 12 months and interest was required, and the rate was based on a specific bond rate. Because I was on the landlord side of the transaction I have no idea if the renter declared the income.
    – mhoran_psprep
    Dec 1, 2012 at 16:00
  • Presumably you would have paid taxes on that deposit a few years ago, so it's not any more income than burying it in a hole in the ground a few years ago and taking it out of the ground now. Although I wouldn't put it past the IRS to tax it multiple times if you let them :-)
    – corsiKa
    Dec 2, 2012 at 1:32
  • Not all deposits generate interest income, and I don't think all states require landlords to give interest earned on deposits to the tenants. I may be wrong on this.
    – NeutronStar
    Feb 20, 2015 at 18:07
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Rent deposit returned to you is not an income. Its your money to begin with. The homeowner is taxed on taking it and can expense the refund, but for you - there's no taxable event.

ATM rebate is what it is - rebate. A cash discount over the money paid. Basically - the bank refunded you a fee you paid (ATM rebate is a refund of the ATM fee you paid to a third-party ATM operator). Again - your money. The ATM operator and the bank both have taxable income/deduction, but its not your problem. You - just got your money back. No income, no taxable event.

Neither should appear on your tax forms, and similarly nor should credit card points, cash rebates, frequent flyer miles, etc. All are in fact either a refund of your money paid or a merchant discount to you, not an income.

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    +1 a more elaborate explanation than mine. One warning on the Airline Points - Cask back/Points given in return for levels of spending are still not taxable. But, say "100,000 miles for simply opening a credit card account" may very well return a 1099, just like the free toasters did in the '70s. These are in effect, 'interest', and not a return/rebate of your own money.
    – JTP - Apologise to Monica ♦
    Dec 1, 2012 at 14:25
  • @Joe, true, but that's why they don't have these offers any more. Now its "Open a credit card and spend $X in the first Y days and get bonus miles".
    – littleadv
    Dec 1, 2012 at 22:09
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    no argument from me on that. Pretty bad to think you got a 'rebate' only to get a 1099 in February. I didn't realize all banks now avoid this, if so, good news for the consumer. Side note - I wrote a guest article how I got $5000 back on $50K in spending on a card and was warned not to be surprised if I get a 1099. We'll see.
    – JTP - Apologise to Monica ♦
    Dec 1, 2012 at 23:17
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    Note that sometimes you can earn interest on a rent deposit in which case the interest earned on the rent deposit is taxable income.
    – anonymous
    Jan 8, 2013 at 15:38
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The number one rule of thumb that will generally answer the "is it taxable" question for any money you may have or receive: "Did you pay taxes on it already?".

Pretty much any money you actually get in your paycheck/DD has already been taxed (or at least the projected amount of tax has been withheld) is your money, to dispense with as you will (or according to your pre-arranged obligations, for most of it). Deposits paid are one such example; if you wrote a check or obtained a money order that they then cashed, that's still your money until it isn't; the contract states that it is being held effectively in escrow (though the landlord has free use of it so long as he can pony up according to the contract). Anything not used to pay for damages is yours, and you get it back.

The ATM fee refund is trickier, but basically this is a benefit offered to you as a service by your bank. You front for the ATM fees incurred when withdrawing, and then those fees are refunded to you by your bank (effectively increasing the number of ATMs you can withdraw from "for free"). As long as there is no net income, it's treated like a mail-in rebate; you didn't gain any money, so there's nothing new to tax.

There are a couple of specific exceptions to this otherwise overarching rule of thumb. One is Roth IRAs. Typically, on investments, you either pay income tax on the money going in and capital gains tax on the money coming out, or you pay nothing going in and income tax coming out. With a Roth, however, you pay income tax going in and nothing coming out, even though you're (eventually) getting back more than you put in.

Another is gifts. Whoever gave you the gift paid the taxes on it (or the money to buy it). However, if they give you a gift valued more than a certain limit (changes every year, and there's a lifetime limit), they have to pay an additional gift tax of 35% on any amount over the limit. That's taxing taxed income (usually).

There are other examples, but for the overwhelming majority of situations, if it's money you already had after any and all applicable taxes, it's not taxable even if you haven't seen that money for a while.

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  • "if they give you a gift valued more than a certain limit (changes every year, and there's a lifetime limit), they have to pay an additional gift tax of 35% on any amount over the limit." The gift tax return has to be filed separately from the income tax return. However, most people who give more than $14K (2014 number) to (at least) one individual and thus need to file a gift tax return elect to have the gift count against their lifetime gift and estate tax exclusion (currently more than $5M) and thus avoid paying gift tax on their current gift. (continued)
    – Dilip Sarwate
    Feb 21, 2015 at 18:13
  • However, a gift tax return must be filed to tell the IRS that this is what is being done, and a copy of the gift tax return should be kept with the will so that the executor of the will know about this reduction. Most estates in the US are smaller than $5M (even after reductions due to gifts) and pay no estate tax at all.
    – Dilip Sarwate
    Feb 21, 2015 at 18:16
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Everything I have read here sounds good except for one small detail. My bank does indeed identify ATM rebates as taxable income. They, in fact, seemed to have begun this practice several years ago but somehow forgot to send 1099's to their own customers despite sending them to the IRS. This ended up costing me nearly $2,000 in back taxes to cover 2012, 2013 and 2014. My bank sent a letter of apology and will cover any penalties and interest accrued "due to their error".

No one from the bank ever told me that these rebates could be taxable when I signed on for this special checking account for which I pay a fee each month to continue. So what is the truth, is it taxable income or not? I have now paid for the 2012 and 2013 tax years for something I still say is not income. I am about to pay the 2014 tax bill and will have to pay another $850 or so due to this ruling by my bank. How can this be right??

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    ATM rebates as in "your bank rebating the fees the other ATMs charge when using the bank's card"? Not taxable. They are wrong. But it may be tough to convince them.
    – JTP - Apologise to Monica ♦
    Feb 27, 2015 at 20:07
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    You really should talk with a lawyer - a free consultation might be sufficient to get your answer. It sounds like utter nonsense to me, especially when it cost that much money. Going in an insisting they are wrong might not work, but getting a legal answer would be of use.
    – BrianH
    Feb 27, 2015 at 20:50
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Schwab phone support (1-866-855-9102) just told me that ATM fee rebates are considered taxable income by the IRS.

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