Are credit card rewards taxable?

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The best part of tax season is knowing that it will end eventually – at least for most of us. Until then, we’ve all got to ensure that our tax returns are filled out properly. (If you’ve got a business, it can be complicated.)

This is the time of year when we get lots of questions about whether or not credit card rewards are taxable. For the most part, the rewards you earn from credit cards are considered discounts or rebates and are not taxable. This includes business credit card rewards. There are some exceptions to the rule. If you have questions or doubts about your specific situation, you should consult a tax professional. Here are the answers to other questions that we get asked often:

Is the intro bonus I earned taxable?

No. When it comes to welcome offers from rewards credit cards, you need to make purchases to earn the bonus, which makes what you earned a discount or rebate.

Are the rewards or benefits I earn from credit card spending taxable?

No. As long as you have to make purchases to earn the rewards, you don’t owe taxes on what you get back.

Are the points or miles I earn from referral/authorized user bonuses taxable?

Usually. With some banks, like Chase and American Express, you can earn bonus rewards by getting others to sign up for cards with special links tied to your account. Because you aren’t making purchases to earn these bonuses, they are taxable. If you’ve earned $600 or more in value from these bonuses in a year you should get a 1099-MISC form from the bank and report your miscellaneous income. But even if you earn less than $600 in referral bonuses, you are still required to report this income on your tax return.

Occasionally, card issuers will send out targeted offers to earn bonuses for adding authorized users to your existing travel credit card accounts. These bonuses are taxable if they don’t require any spending to earn. But quite often these offers will have a spending requirement, in which case the bonuses wouldn’t be taxable.

Are bank account bonuses taxable?

Yes. If you earn more than $10 in interest from a bank account in a year, you’ll get a 1099-INT form for your interest income. Bank account bonuses are almost always considered interest income.

There is a bit of a gray area when it comes to valuing bank account miles or points bonuses, revolving around the question of how much those points are actually worth? There have been instances of banks sending out 1099-INT forms that attach a specific value to the points (i.e., one cent each). In other cases 1099-INT forms have been sent out once the rewards were redeemed and the taxable value was the value of the redemption.

There has been at least one instance of someone fighting the validity of a taxable bank bonus in court, so you could talk to a tax professional about your situation. But it’s hard to imagine that it’s worth the effort to fight over a few hundred dollars in taxable income.

Are business credit card rewards treated differently?

Business credit card rewards are not taxed differently than the rewards you earn from personal cards. But if you use rewards to reduce a business expense you it can change how much you deduct for qualified business expenses. For example, if you use cash back to pay for half of a hotel stay that is part of a business trip you cannot deduct that expense from your taxes.

Bottom line

Most of the time you won’t need to worry about credit card rewards when filing your taxes. But if you earned a bonus that didn’t require you to make any purchases or you earned rewards from a bank account, it’s a bit different. In those cases you’ll most likely need to report the income on your tax return even if you didn’t receive a 1099 form from the bank.

And, as always, if you have doubts about your situation you should consult a tax professional.