Are Credit Card Rewards Taxable?

SHORT ANSWER: Credit card rewards aren't taxable if earned from purchases. However, if it's a business credit card or a signup bonus without a minimum spend, there are additional considerations.  

If you're just getting started earning credit card rewards or have already racked up some good rewards this year, it's natural to wonder whether you'll need to report the rewards earned, either as cashback or points, to the IRS. Are credit card rewards taxable? Generally, no. According to the IRS, credit card rewards are considered a type of spending rebate, so they're not considered a type of income. Read on to understand the tax implications of credit card rewards.

Because most Americans are required to file their final tax returns by April 15, the guide below can help you sort out credit card rewards for your situation. 

Which Credit Card Rewards Are Not Taxable?

If you are ready to start earning credit card rewards, it's important to understand what makes a reward taxable or nontaxable. Even if you're a credit card beginner or have no credit history, you can apply for certain credit cards designed to help you. Nontaxable rewards are discussed below. 

Points Earned With Purchases

One of the most common types of credit card rewards is points. Credit card issuers will typically give you anywhere between 1 and 10 points per $1 spent. These rewards can be divided into two types: the type you earn after signup and the type earned on purchases after that.

In the first case, the credit card will give you, for example, 60,000 reward points when you spend $5,000 in the first three months of account opening. Because the points only come after you spend the money, it's considered a rebate rather than income and isn't taxable.

In the second case, when you earn points for each dollar spent, the IRS also views it as a rebate. You're earning a percentage of your expenses back, so it's not considered income. 

Want to earn more? Check out the best credit cards for cashback, rewards, online shopping or restaurants. 

Airline Miles Earned From Traveling

Like cashback, airline miles are a popular form of credit card rewards when you use airline credit cards. Here are a few examples:

• The Aeroplan credit card from Air Canada will give you 60,000 airline miles after you spend $3,000 on purchases in the first three months your account is open. 
• The British Airways credit card offers 75,000 miles after you spend $5,000 in the first three months.
• Delta Air Lines, United Airlines, Southwest Airlines, Hawaiian Airlines, Alaska Airlines, American Airlines and most other major airlines offer credit cards with signup bonuses of 50,000 to 100,000 points after a minimum spend in the first three months. 

All of these rewards depend on spending money so when you earn them, they don't need to be reported as income. That's great news, as some of the rewards above could be worth $500 to $1,000 in credits for flights. Want to earn more? You can find the best travel credit cards or airline credit cards. 

Which Credit Card Rewards Are Taxable?

While most credit card rewards aren't taxable, there are a few exceptions to be aware of. The following credit card rewards are considered taxable:

Credit Card Sign-Up Bonuses

If a credit card offers a signup bonus without requiring a minimum spend, this is considered income. Rewards are treated as income in exchange for performing a service when you don't have to make an expense to earn the reward. In that case, they will be taxed similarly to more traditional income, like wages you earn at a job. 

This type of bonus is rare for credit cards. If you find one, they're usually for a smaller amount — $50 to $100. However, you'll commonly see these bonuses when you open a new bank account. 

If a bank offers incentives for signing up for a new account in the form of cash deposited into an account, this will be considered taxable income. If the bank offers rewards points and frequent flier miles to new account holders without requiring expenses, this is also considered taxable income. 

The IRS considers this interest income for a bank account, and you'll receive a 1099-INT form showing the value. Rewards points and airline miles are typically valued at an average of 1 cent per point, so a 30,000-point reward would be taxed as $300 of income.

Refer-a-Friend Bonuses

If your bank or credit card offers a referral bonus, this is considered taxable income. For example, the bank or credit card may offer a referral bonus of $20 to $100 per referral or points worth an equivalent amount, up to $250.

Because refer-a-friend bonuses are offered in exchange for performance, they're considered a type of commission. In that case, you'll usually receive a 1099 miscellaneous income tax form from the institution that issues the reward.

Is Cashback Taxable?

Cashback is not taxable. For example, receiving 2% cashback on all purchases is treated as a rebate or reward from the credit card issuer on expenses made rather than income. For that reason, if you regularly use a cash-back credit card, you don't have to worry about reporting the income to the IRS. The only exception is for business credit cards, as explained below. 

Are Business Credit Card Rewards Taxable?

Business credit card rewards are treated the same as personal credit card rewards, with one notable exception. In general, if the rewards are tied to expenses, they're considered rebates rather than income. The exception is that because of those rewards, your total deductible business expenses will be less.

For example, if you use a business credit card with a flat 2% cashback and spend $10,000 in business expenses on the card in one month, you'll only be able to take a deduction of $9,800 as the 2% you get in cashback doesn't count towards total expenses. 

How Credit Card Rewards Are Taxed

If you have to pay taxes on credit card rewards, such as a refer-a-friend bonus, you'll receive a 1099-MISC form to report income. In the case of a reward from your bank accounts, you'll usually get a 1099-INT to report interest earned. 

How to Avoid Taxes on Your Credit Card Rewards

There's no way to avoid taxes on credit card rewards if they are classified as taxable income. You can avoid credit cards that pay rewards or signup bonuses without requiring expenses. In that case, the credit cards you choose are considered to offer rebates; you won't need to report taxable income. 

Using Credit Card Rewards

If you maximize signup bonuses with a minimum spend, credit card rewards can be a way to save more on everyday purchases or save up for a vacation — without having to spend your hard-earned savings. For example, you could sign up for travel rewards credit cards and save points to take a weekend getaway to New York, the Caribbean or the mountains. Likewise, you could get cash-back cards to save 1% to 5% on everyday purchases like gas, groceries, restaurants or entertainment. 

While all these rewards are spending rebates, that's great news when it comes to filing taxes, as you won't be required to report all your rewards as income. Need more help filing your taxes this year? Find the 2023-2024 tax brackets, learn how to file taxes for free or find the best free tax software here.