My company awards incentive points to dealerships and their salesmen when a vehicle is sold; these points are to be converted to actual gift cards when they are redeemed. Are these points 1099 reportable when they are earned or when they are redeemed?


We need more details of the nature of the “points” and the arrangement to be able to talk with the IRS.  But what are the circumstances or rules in redemption?  

Generally you would report based on the IRS doctrine of “constructive receipt” of income. However, if there are restrictions on the compensation, then the income is not constructively received.  

So it would seem to depend on whether the points are restricted prior to conversion and redemption. If the points can be converted and redeemed at any time without restriction, then we expect that they would be reportable in the year awarded; however, if there are requirements on the conversion and redemption, then they likely are not be reportable until redemption.

See IRS Publication 15b, Employers Guide to Fringe Benefits, which includes the following on “constructive receipt”:  

Constructive receipt.   Income is constructively received when an amount is credited to your account or made available to you without restriction. You need not have possession of it. If you authorize someone to be your agent and receive income for you, you are considered to have received it when your agent receives it. Income is not constructively received if your control of its receipt is subject to substantial restrictions or limitations.

Have more questions? Submit a request