Are My Credit Card Rewards Taxable?

In general, credit card rewards are considered a discount on a purchase rather than income, so they're not taxable.
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Written by Erin El Issa
Senior Writer

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Dedicated users of rewards credit cards can easily rack up hundreds or even thousands of dollars a year in cash back, points or miles. Are those rewards taxable? Usually, no.

Discounts, not income

In general, the IRS views credit card rewards as a discount rather than as income. So if you’re getting 2% cash back on a $100 purchase, that would be considered a $2 discount. Discounts aren’t taxable, so you don’t need to keep track of your credit card rewards for tax time.

🤓Nerdy Tip

Some issuers have disclosures in their credit card agreements saying that your rewards may be reported as income to the IRS, although such reporting is highly unusual. If your rewards are reported as income, you’ll receive a 1099-MISC form showing how much to claim. Check your credit card agreement to see if your rewards will be affected.

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Business purchases are different

Although rewards on personal credit cards generally aren't taxed, different tax rules apply with business credit cards. Generally, business expenses are deductible against business income. If you spend $500 on something for your business, you can deduct $500 on your business taxes.

But credit card rewards reduce the amount of that deduction. If you earned $10 in rewards on that $500 purchase, then that purchase really cost your business only $490 — and that's all you can deduct. In this case, the $10 isn't considered income, but since it reduces the deduction by $10, it has the same tax effect.

And here's a wrinkle within the wrinkle: If you’re using a personal credit card to make a business-related purchase and then you get reimbursed by your employer, any rewards you earn won't be considered income by the IRS.

🤓Nerdy Tip

Unlike with credit cards, a sign-up bonus you earn for opening up a bank account will likely be considered taxable income. In that case, you aren't receiving a rebate or discount on anything; the bonus is simply deposited in your account. Hence, you may need to report it.

Frequently asked questions

Generally no. The IRS considers credit card rewards as a discount, not as income. Discounts aren’t taxable.

No. Since discounts are not taxable, you do not need to keep track of credit card rewards you earn throughout the year, for tax time.

Not really, but unlike rewards earned with personal credit cards, you may still face some tax implications. Here's why:

Typically, you can deduct business expenses against business income. But if you're earning rewards — that is, a discount — on a purchase through a business credit card, you can deduct only the expense minus the discount. So if your business credit card earns 2% back on all purchases, and you use it to buy a $500 printer for your business, the most you can deduct is $490 — because your card gave you a $10 discount on the price.

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