Are My Credit Card Rewards Taxable?

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.

In general, the IRS views credit card rewards as a discount or rebate on purchases rather than as income. So if you’re getting 2% cash back on a $100 purchase, that would be considered a $2 discount. If you get a sign-up bonus worth $500 after hitting a $3,000 spending requirement, that would just be a $500 rebate on the $3,000 you spent.

Discounts and rebates on spending aren’t income and aren't taxable, so you don’t need to keep track of your credit card rewards for tax time.

Referral bonuses can be taxable

Rewards that are not earned through spending, however, may well be taxable. A common example is a referral bonus: You encourage a friend to apply for a card using a referral link that gives you credit for the sign-up, and the card issuer gives you a bonus as a thank-you. That counts as income.

“If you have to spend money for it — for example, you get a bonus after spending $3,000 within a certain time frame — then, it's not taxable,” Luis F. Rosa, a certified financial planner and enrolled agent in Las Vegas, said in an email. “However, if no money was spent and it was just an incentive, then, the income is taxable.”

Credit card issuers’ fine print spells this out, though some issuers provide more information than others. Citibank’s terms and conditions are quite specific, stating that you may owe taxes on rewards in the year in which you redeemed them, and Citibank determines the value of those rewards. Chase and American Express also include language on taxes in their terms and conditions, but it’s more vague, basically stating that you may earn taxable income and, if so, you’re responsible for the tax liability.

If your credit card rewards earnings meet the qualifications to count as taxable, you may receive a 1099-MISC form from your card issuer, which will contain information to include on your tax return. Rosa says that even if your earnings from referral bonuses amount to less than $600 and you don’t receive a 1099-MISC, you should still report those earnings to the IRS.

When in doubt, consult a tax professional for guidance on your specific situation.

Business purchases are also different

Although rewards for spending 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.