stated income for credit card / travel hacking

[ILikeStarTrek]

I retired last year, and now that I'm traveling more often, I'm intrigued by those credit card offers of thousands of frequent flier miles and so forth, aka credit card / travel hacking. I was on a plane last week and the flight attendants offered a great deal on a credit card with no annual fee for the first year, and I figured what the heck, so I got an application and went for it.

I hesitated when I got to a question on the application about my income. Technically, my income is currently about zero since I'm mostly living off money I'm pulling from my after-tax investments. I did have an income during the first half of 2018 (i.e. before I retired), so if the credit card company from last week scrutinized my (non-zero) income answer on my application, I could show them my latest income tax return - I wasn't lying if I interpret the income question as being for the latest tax year. But if I apply for any credit cards next year, I won't be able to get by with that for my 2019 income.

The one exception to my low income in the next few years is, I expect to do Roth conversions starting this year, and I know that is taxable. But I'm not sure if I can consider the amount of a Roth conversion as income for purposes of filling out credit card applications.

Even if I have income on my tax return (e.g. from Roth conversions for now, or eventually from 401k withdrawals in a few years), I think some credit cards ask for the name of one's employer (fortunately this one did not). If I leave such a question blank, they may scrutinize the income answer more. I could envision the card company being more concerned with current income than what was true on one's income tax form from last year. E.g., they may ask for something like pay stubs to verify income stated on their application form.

I'm supposing that some of you who do credit card travel hacking will have regular, verifiable income from Social Security, pensions, etc. But for anyone who has been closer to my situation, what should I expect in this regard if I start to do more credit card / travel hacking? What did you put down on credit card applications if you didn't have what I will call a "real" income? Have you been scrutinized about your stated income if you were retired? Anyone been turned down for credit cards due to lack of income? Should I abandon the idea of credit card hacking? Or am I overthinking all this - do the card companies not care much about income if one has a good credit history?

 

[GrayHare]

You can put any reasonable number down for income, they don't check. I'd use a number close to the income reported on my tax return.

 

[SecondCor521]

I'm in a similar situation and I've applied for and received plenty of credit cards since retiring.

I usually read their definition, if they give one, for income. I then answer their question honestly using their definition as a guide. If they don't provide one, I use my common sense and what I feel I could justify if they asked. Usually for employer / job title I just put "Retired".

I have never had my income scrutinized because I was retired. Bank of America tends to ask pretty invasive questions if they have you on the phone and ask for a credit limit increase or even if you ask to shift existing credit from one card to another, but that is their general policy which they apply to everyone.

I've never been turned down for a card for insufficient income. I've been turned down for other reasons, which are usually related to me being too aggressive with the travel hacking - for example, applying for too many cards from a single issuer, or having too many recent credit inquiries. If you pay more attention to the rules than I do, you can minimize that.

Credit card companies generally care about credit score (which is just the distillation of your entire credit history to a single number) and income the most - obviously the higher the better in both cases. They also care about how much credit they've already extended to you (the less the better), how much other issuers have extended to you (sometimes having big lines with one issuer will help you get bigger lines with others), and, if you've have cards with them currently, how much you use those cards (higher dollar volume is better).

I've travel hacked for over a decade, and retiring three years ago didn't slow things down for me at all. If anything, I have more time and focus to devote to it and have done a little better. There are reasons not to travel hack, but I don't think being retired is one of them.

 

[swakyaby]

Whenever I applied for a new credit card, whether it was for a department store, or a cash back VISA card, I was always initially surprised by the income question. When I was working, I tended to understate my income, believing that this information would be shared or sold, and I would be besieged by financial advisors or wealth management offers. Now that I am retired, I too am not sure how to answer that question. If I put down the income my latest tax return shows, I’m sure my credit limit would be very low. But if I put down what my actual portfolio withdrawal amount is, my “income” would be much more reflective of my finances. So I have simply put 3.5% of my portfolio. Is there any ramifications to reporting a different income than what your tax return shows?

As for your question about whether it’s okay to include your Roth IRA conversions as part of your income, I don’t see why you shouldn’t. Certainly the IRS doesn’t draw any distinctions.

 

[SecondCor521]

Is there any ramifications to reporting a different income than what your tax return shows?

As for your question about whether it’s okay to include your Roth IRA conversions as part of your income, I don’t see why you shouldn’t. Certainly the IRS doesn’t draw any distinctions.

Well, sometimes AMEX will ask you for permission to get a copy of your tax return from the IRS. I'm not sure what triggers that with them, but I've read about it happening. Forgot to mention that in my previous post.

It doesn't matter if your income doesn't match your tax return information, although for most working people the two numbers are usually similar. It does matter if your answer isn't accurate on the application *and* you end up getting into trouble with that card (for example, charge it up and end up declaring bankruptcy or something). In theory, the credit card company could go after you for fraud. In practice I've never heard of that happening.

While Roth conversions create taxable income, they are just moving money from one pocket to another. They don't create spendable income directly, especially for people (like me) under age 59.5.

But then, taking money out of a taxable account on a monthly basis creates spendable money much like a paycheck, but doesn't create much taxable income if any.

For retired people, answering the "income" question is trickier.

 

[Red Badger]

1040 agi.

 

[audreyh1]

+1
I use whatever our most recent tax return shows. No bank will quibble with that.

 

[pb4uski]

+2... I use the income from our tax return, which since we do tIRA withdrawals and Roth conversions to the top of the 0% capital gains bracket is $78,750 plus the $24,400 standard deduction or a total of $103,150 for 2019.

 

[Another Reader]

+2... I use the income from our tax return, which since we do tIRA withdrawals and Roth conversions to the top of the 0% capital gains bracket is $78,750 plus the $24,400 standard deduction or a total of $103,150 for 2019.

Chase now asks for taxable and non-taxable income. If I understand you correctly, you would answer zero for taxable income and $103,150 for non-taxable income?

I have been avoiding these questions, because I write so much off with the rentals. My taxable income is very low in comparison to the real income.

 

[audreyh1]

Chase now asks for taxable and non-taxable income. If I understand you correctly, you would answer zero for taxable income and $103,150 for non-taxable income?

I have been avoiding these questions, because I write so much off with the rentals. My taxable income is very low in comparison to the real income.

Non-taxable income. Well my non-taxable interest income from muni funds is also on my tax return, so I suppose I would add that too if I wanted to add more income.

 

[pb4uski]

Chase now asks for taxable and non-taxable income. If I understand you correctly, you would answer zero for taxable income and $103,150 for non-taxable income?

I have been avoiding these questions, because I write so much off with the rentals. My taxable income is very low in comparison to the real income.

No, the opposite..... taxable income would be $103,150... all of that income is subject to tax (after the standard deduction).... non-taxable income would be zero since all my income is subject to tax.

 

[Bamaman]

Most credit card decisions go by the FICO score anyway. Many apps are never even seen by a human being.

Just be reasonable.

 

[Jerry1]

I have a similar issue, but for me it’s the cc companies asking me to verify my income as an existing card holder. I’m hesitant to answer them because I got the cc’s when working and now would report less income under any method. I have never used my credit limit and pay my card off every month, but I’d still prefer not to have my limit reduced. There request is just that, a request, so I don’t feel bad about not responding, but I assume at some point it will be a requirement.

I’ll see if I can find their definition. I’ve never looked, but this seems like something they deal with all the time.

 

[braumeister]

Chase now asks for taxable and non-taxable income.

I just got a new Chase card last month and they simply asked for my income, no distinction between taxable and non-taxable. I used my 1040 AGI number as always, and they were fine with that. No further questions.

 

[karen1972]

I think as soon as you say job "retired" they understand that the income part is going to be different.

I have been using my tax AGI but several of them have now asked about my net worth which seems like they are now trying to factor that in since who cares if your "income" is $20k if you have $2M to spend.

 

[Another Reader]

No, the opposite..... taxable income would be $103,150... all of that income is subject to tax (after the standard deduction).... non-taxable income would be zero since all my income is subject to tax.

My mistake on the $78,750. Somehow I was thinking of spendable income. However, if your deduction is $24,400, does that income not disappear before you get to taxable income?

Some of these questions may be framed so as to meet government reporting requirements for loss risk. What they should be interested in is how much income arrived in your bank account, available to be spent.

 

[pb4uski]

While it is true that taxable income on the Form 1040 is income less deductions, I have NEVER had a credit provider ask for taxable income... I am skeptical of your assertion that it is asked for.

If someone had $103,150 of W-2 income instead of $103,150 of tIRA withdrawals and took the standard deduction on their tax return do you really think the lender is looking for one to put $78,750 on their credit card application?

 

[PatrickA5]

I've applied for a couple Chase cards lately and they do (for some reason) ask if any of the Income is non-taxable.

Here's what it says on the application:

Is any of your income non-taxable?

"This is the portion of your total gross annual income that you or your tax advisor has determined isn't subject to income tax. Examples of income that are typically not subject to income tax may include money you receive from disability, worker's compensation, child support, housing allowance, social security, or public assistance."

I always just put down our AGI.

 

[pb4uski]

Under that definition I wouldn't have any income that isn't subject to income tax.... though my capital gains are subject to a 0% tax rate but that could change.

Social security is an interesting inclusion since for many of us 85% of it will be subject to tax.... from the wording of the statement and the items enumerated it sounds like the question is targeted to low/middle income applicants.

 

[PatrickA5]

Under that definition I wouldn't have any income that isn't subject to income tax.... though my capital gains are subject to a 0% tax rate but that could change.

Social security is an interesting inclusion since for many of us 85% of it will bw subject to tax.... from the items enumerated it sounds like the question is targeted to low/middle income applicants.

+1 To me it's unclear why they ask the question. Notice that they don't ask for things like tax free bond interest, standard deduction, etc.

It's possible I suppose, that they don't give as much "value" to the these types of income in determining credit limits or if one qualifies for the card. For example if 100% of your income is from "public assistance" then they might not give you the card - as opposed to say earned income from a job.

 

[RunningBum]

We had a similar thread recently. http://www.early-retirement.org/forums/f28/calculating-income-99501-5.html

There was a lot of disagreement over what was allowed. I go by my post #83 in that thread, to justify using withdrawal of assets as part of my income.

https://www.consumerfinance.gov/poli...tions/1026/51/

These are the guidelines for credit cards set forth by the Consumer Financial Protection Bureau

Quote:
§ 1026.51 Ability to Pay.



...


(ii) Reasonable policies and procedures. Card issuers must establish and maintain reasonable written policies and procedures to consider the consumer's ability to make the required minimum payments under the terms of the account based on a consumer's income or assets [emphasis mine] and a consumer's current obligations. Reasonable policies and procedures include treating any income and assets to which the consumer has a reasonable expectation of access as the consumer's income or assets, or limiting consideration of the consumer's income or assets to the consumer's independent income and assets. Reasonable policies and procedures also include consideration of at least one of the following: The ratio of debt obligations to income; the ratio of debt obligations to assets; or the income the consumer will have after paying debt obligations. It would be unreasonable for a card issuer not to review any information about a consumer's income or assets and current obligations, or to issue a credit card to a consumer who does not have any income or assets.










No specific definition for income. Note that they include assets as well as income. Certainly the intent is clear, to determine whether I can make the payments, and my assets that I'm willing to withdraw at a sustainable rate would seem to meet that criteria.


https://www.consumerfinance.gov/poli...ulations/1026/ is the base page for the Truth in Lending Act.

There was continued disagreement, but none on the other side directly disputed my post. Of course the thread was getting a bit long by then and some had dropped out.

 

[Another Reader]

While it is true that taxable income on the Form 1040 is income less deductions, I have NEVER had a credit provider ask for taxable income... I am skeptical of your assertion that it is asked for.

If someone had $103,150 of W-2 income instead of $103,150 of tIRA withdrawals and took the standard deduction on their tax return do you really think the lender is looking for one to put $78,750 on their credit card application?

Really don't appreciate you questioning my veracity. From the page:

Income
Please tell us your income info to keep your personal profile up-to-date. It'll also help us consider you for offers you might find valuable, such as credit line increases or other Chase products.
Annual taxable income:
$
Annual non-taxable income:
$
When you tell us your annual taxable income or annual non-taxable income, you don't need to include alimony, child support or separate maintenance if you don't want us to rely on it. If you're 21 or older and regularly use income from others to pay your bills, you can include that, too.

Oddly, additional wording appeared that is not on the webpage when I copied it, so I have deleted that.

 

[pb4uski]

So under that guidance I would say that tIRA withdrawals and/or Roth conversions are taxable income.... even though Roth conversions are just shifting money from one pocket to another.

 

[Another Reader]

So under that guidance I would say that tIRA withdrawals and/or Roth conversions are taxable income.... even though Roth conversions are just shifting money from one pocket to another.

I agree with you. What about your standard deduction? And my six figures of depreciation expense - a non cash expense?

 

[pb4uski]

Those are not income. I think what they are looking for is income that is subject to tax and income that is not subject to tax, but in both cases income. So technically, the latter would include municipal bond income and SS that isn't subject to tax (significant for low/middle income applicants).

For real estate, I think they would be talking about net Schedule E income (that is included in total income on 1040) and not gross rents.... though I could see a valid argument for Schedule E with depreciation added back... ask them.