Is Credit Card Cashback Taxable Income and What You Need to Know

If you're earning cashback rewards on your credit card, you might be wondering if you have to pay taxes on them. The good news is that, in most cases, cashback rewards are not considered taxable income.

However, there are some exceptions to keep in mind. If you're using your credit card for business expenses, for example, the cashback rewards you earn may be considered taxable income. This is because the IRS considers business expenses to be tax-deductible, and the cashback rewards are essentially a form of income.

In general, though, cashback rewards are considered a form of non-taxable income, and you won't have to pay taxes on them.

You'll receive a 1099-MISC form from your credit card company if the cash value of your non-spending-linked rewards exceeds $600.

If you receive a 1099-MISC, you must report the payouts as income and pay tax, so don't ignore it.

The IRS only issues a 1099-MISC when $600 of income comes from taxable income payouts, so if you receive one, it's a clear indication that you need to report the rewards as income.

You'll need to report non-spending-linked rewards as income, even if the cash value is insignificant, and regardless of whether or not you receive a 1099-MISC.

If you earn $600 or more in taxable rewards, you may receive a 1099 from your credit card company, but if you earn less, you'll still need to report this information on your tax return.

You should review your statements for the prior year to calculate how many taxable rewards you've earned if you're unsure whether your credit card rewards are taxable.

Credit card rewards are generally not taxable, but there are some exceptions. If you receive a sign-up bonus in cash just for opening an account, it may be considered taxable income. You'll receive a 1099-MISC from the credit card company if the cash value of non-spending-linked rewards exceeds $600.

The IRS considers rewards points from personal purchases as discounts, not income. However, if you cash out rewards points earned through a business transaction, it may be considered taxable income.

Some credit card companies, like American Express, have been investigated for advising business owners to use their wire service, deduct the costs as a business expense, and then treat the cash rewards as tax-free. This strategy can get problematic, especially if the reward points are cashed out by an individual.

You won't need to report credit card rewards you earn via spending money, as the IRS views these as discounts. You should, however, report rewards you earn through offers that don't require you to spend any money, even if the cash value is insignificant.

The IRS doesn't specifically address the topic of credit card rewards, leaving it open to interpretation. Most tax experts agree that credit card rewards earned through credit cards are non-taxable rebates, but this may change if you receive a 1099-MISC from your credit card issuer.

The American Express campaign that got the attention of the Justice and Treasury Departments in 2021 is a prime example of how cash rewards can get tricky when it comes to taxation.

In this case, American Express advised business owners to use their fee-based wire service, deduct the costs as a business expense, and then treat the cash rewards accrued from the transaction on a personal credit card as tax-free. This strategy targeted small business owners and sole proprietors/professionals who shied away from accepting AmEx cards.

The IRS may consider rewards points from personal purchases as income if they are received in the form of cash, as was the case with the American Express campaign. This is because two different entities are involved - a company made the points-accruing purchase, but then the reward points were cashed out by an individual.

It's worth noting that American Express discontinued this practice in early 2020 and took actions to change products, policies, and personnel after admitting that it had "failed to uphold... [its] values and had positioned certain products inappropriately, specifically with respect to tax benefits."

If you receive a 1099-MISC from the credit card company, then you may have to pay taxes on your credit card rewards. Don't bury your head in the sand or jump to conclusions - get advice from a tax expert and take it from there.

Most credit card rewards are not taxable in the eyes of the IRS, as they see these types of transactions as discounts, not taxable income.

You need to report credit card rewards as income when you file your taxes, but only in certain situations. If you earn rewards without having to spend any money, you'll need to report them as taxable income.

Receiving a Form 1099-MISC from your credit card issuer is an indication that you have to report the rewards in question as taxable income. Some banks issue this form for earnings below the $600 threshold, so it's essential to keep an eye on your statements.

You should include rewards you earn through offers that don't require you to spend any money in your taxable income. This includes referral bonuses and no-strings-attached credit card offers.

Here's a breakdown of when credit card rewards are taxable:

If you redeem business card rewards for a personal vacation, the rewards may be seen as income and could be taxable. Similarly, if you attempt to "beat the system" and purchase money orders or gift cards that are then used directly or indirectly to pay off the credit card, your rewards gains may be taxable.