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"Points" as income?

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eakub2006

Member
What is the name of your state (only U.S. law)? Nebraska

Hopefully I am posting this in the correct section. Maybe this needs to go under taxes?
I work at a department store and one of our "duties" is opening up store credit card accounts. We used to get paid $3 for every one we opened and this money would come on our paychecks. They would be taxed as normal income along with the rest of our earnings.
Well, the store has decided to try out this new system of "payment". For each account we open, we get a scratch card that we scratch to reveal how many "points" we have earned. We get these scratch cards INSTEAD of the $3 we used to get. We use these "points" to redeem for merchandise (anything from clothing to accessories to small appliances to lawn/garden items) off of this website. Sounds nice, huh?
Well, I found out today that the store will be reporting each "point" as $0.20 in income. And this income will be reported on our tax form. But it is apparently reported as "other" income or something because they said we would need to pay 15% in income tax on those "earnings". We have to pay the tax whether we redeem our points or not.
We paid regular income taxes on our earnings when it was just the $3 being added to our paychecks for each store account opened.
My question is... can they do this? It doesn't sound like it would be legal. Especially if you never redeem your "points" for any merchandise.
Please help! This makes me want to avoid opening up store credit card accounts, but I will get in trouble with my boss if I'm not meeting my monthly goal.
 


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eakub2006

Member
Oh, here's the example they gave...

If you earned 1,000 points then you would need to pay $30 in income tax for those points.
 
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swalsh411

Senior Member
First of all, they do not decide what tax rate you pay on any income. That is determined by each individual's personal tax situation.

Yes it is entirely legal to tax employees on what is essentially a gift card. In fact it would be improper NOT to. (although many employers ignore this).

This document contains the IRS position on the issue

http://www.irs.gov/pub/irs-tege/p_4090_fed_0305_text.pdf
 
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eakub2006

Member
I read through the document you provided. I have never heard of such a law. I just think it's stupid to be required to pay income tax on some junk that I don't even want (which is basically what is on this website where you redeem your "points").
So how did they come up with the $0.20 per point? Considering how many points you need to "buy" something off that website, it seems like a complete rip off to me. Why can't they just give us the $3 per new store account again?
And as far as the 15% in taxes goes... don't you have to pay more in taxes depending on how the income is reported? There's a difference between regular wages and what is labeled as "other". I don't know how or why they came up with the 15%, but that is what they used in the example they gave.
 
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eakub2006

Member
"So how did they come up with the $0.20 per point? Considering how many points you need to "buy" something off that website, it seems like a complete rip off to me."

Here's what I am talking about:

Here's a watch that can be purchased for 301 points off of the website.
If each point is being reported as $0.20 in income, then the watch would cost me $60.20.
The watch retails for $65 and I could purchase it at the store I work at. Employees receive a 25% discount when they buy something at the store. So I could buy the exact same watch for $52.16 (including sales tax). And that's not taking into consideration other promotions we might have going on, like a coupon that I could use in conjunction with my employee discount.
 
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eerelations

eerelations

Senior Member
eakub2006 said:
I read through the document you provided. I have never heard of such a law. I just think it's stupid to be required to pay income tax on some junk that I don't even want (which is basically what is on this website where you redeem your "points").
So how did they come up with the $0.20 per point? Considering how many points you need to "buy" something off that website, it seems like a complete rip off to me. Why can't they just give us the $3 per new store account again?
And as far as the 15% in taxes goes... don't you have to pay more in taxes depending on how the income is reported? There's a difference between regular wages and what is labeled as "other". I don't know how or why they came up with the 15%, but that is what they used in the example they gave.
Click to expand...

Just because you've never heard of a particular law, and just because you think it's stupid when you do find out about it, does not in any way mean it doesn't exist or that you don't have to comply with it.

If your employer wants to go back to the $3 per new account system, it may. If it doesn't want to do that, it doesn't have to. There is no law anywhere in the US that will force your employer to go back to that system.

The bottom line here is that what your employer is doing is not only perfectly legal, but legally required as well. There is absolutely nothing you can do to change that. Period.
 
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eakub2006

Member
I do have one more question. I understand that this is the law, whether I think it is stupid or not. But what about the fact that they did not inform us of this when they first started the new system? It wasn't until 2 months later that I was made aware of this. And the only reason I found out was because a print out of an e-mail that was sent to HR was tacked up on the bulletin board next to the terminal where we clock in and out. If I would have known this in the beginning, then I probably wouldn't have opened any accounts starting then. But I did and now I have these stupid "points".
 
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Silverplum

Senior Member
eakub2006 said:
I do have one more question. I understand that this is the law, whether I think it is stupid or not. But what about the fact that they did not inform us of this when they first started the new system? It wasn't until 2 months later that I was made aware of this. And the only reason I found out was because a print out of an e-mail that was sent to HR was tacked up on the bulletin board next to the terminal where we clock in and out. If I would have known this in the beginning, then I probably wouldn't have opened any accounts starting then. But I did and now I have these stupid "points".
Click to expand...

Ah, but...
eakub2006 said:
Haha! That was my idea, but we are "required" to do it. We have a monthly goal and we can get written up if we don't make our goal.
Click to expand...

I have an idea: use the points to buy Christmas and birthday gifts. ;)
 
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pattytx

Senior Member
You're going to be taxed on them as income one way or the other. You might as well use them.

And you start complaining about it, they might pull the program altogether.
 
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