Are credit card rewards taxable?

With the income tax deadline approaching, you may be wondering if your credit card rewards are taxable — the answer depends on how you earned the rewards
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The answer to “are credit card rewards taxable” is usually "no." However, the Internal Revenue Service (IRS) sometimes views bonuses, cash back, points and miles to be income. So what are the rules exactly when it comes to Uncle Sam and your credit card rewards?

IRS Rules for Credit Card Rewards

The IRS generally considers all credit card programs to be “rebates” for your spending rather than income. Because the credit card is awarding you money or points in exchange for you spending money on a card, that is considered a rebate.

In other words, your Chase Ultimate Rewards points earned from your Chase Sapphire Preferred® Card or cash back earned from the Blue Cash Preferred® Card from American Express is safe from taxes. Besides, the IRS doesn’t have the capability to track down and analyze millions of people and their credit card awards — so you can earn your rewards stress-free.

Are sign-up bonuses taxable?

Sign-up bonuses are usually not taxable, but in situations where you complete a one-time action to earn the bonus (for example, making a purchase on your credit card), you could owe taxes on that bonus.

The distinction to keep in mind is this — did you receive cash back, points or miles as a “rebate” for your spending, or were they a bonus for taking a singular action such as opening a bank account? If the answer is the former, you shouldn’t be taxed. If the latter applies, you may need to pay income tax on those rewards.

Business Credit Card Rewards

The above rules also apply to business expenses. You will not get taxed on your credit card bonuses that you earn from cards such as the Ink Business Preferred℠ Credit Card. However, there is a difference when using your rewards.

For example, let's say you need to pay for a $500 flight. If you charge it to your card and the flight is for business purposes, it can qualify as a tax write-off. However, if you use points or miles to cover the entire cost, you cannot deduct the retail value of the flight since you paid for it with credit card rewards.

So if you are a small business owner using business credit cards for your expenses, be wary of using points and miles for business travel. You may be better off using them for personal travel or giving them away to employees.

Paying Income Tax on Credit Card Rewards

If your bonus is taxable, you will likely receive a 1099 tax form in the mail. If your issuer sends you a 1099 form you are expected to claim your credit card rewards on your tax return as income. Depending on the rewards that you earned, you may receive one of the two following forms:

1099 INT

The 1099-INT is used to report income from interest earned, such as interest from a savings account. If you earned a bonus from opening a checking or savings account, you should expect to receive one of these in the mail.

1099-MISC

The 1099-MISC is used to report miscellaneous income. This form will only be sent when you earn more than $600 — but keep in mind you are still responsible for claiming all earned income on your tax return.

If you are unsure about your tax liability and if you owe taxes on credit card rewards, it is always best to consult a tax professional.

The information related to the Ink Business Preferred℠ Credit Card has been independently collected by ValuePenguin and has not been reviewed or provided by the issuer of this card prior to publication.

Brett Holzhauer

Brett Holzhauer is ValuePenguin’s travel rewards expert, focusing on credit card rewards maximization, consumer travel trends, and personal finance news. He has earned and burned over 5 million points and miles throughout his travels, saving him roughly $75,000 in travel expenses.

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How We Calculate Rewards: ValuePenguin calculates the value of rewards by estimating the dollar value of any points, miles or bonuses earned using the card less any associated annual fees. These estimates here are ValuePenguin's alone, not those of the card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer.

Example of how we calculate the rewards rates: When redeemed for travel through Ultimate Rewards, Chase Sapphire Preferred points are worth $0.0125 each. The card awards 2 points on travel and dining and 1 point on everything else. Therefore, we say the card has a 2.5% rewards rate on dining and travel (2 x $0.0125) and a 1.25% rewards rate on everything else (1 x $0.0125).