Are credit card rewards taxable? Not usually, but… | finder.com

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Are credit card rewards taxable?

Usually, no — but there are exceptions.

Credit card rewards usually aren’t taxable. But make sure to watch out for select instances where rewards could be considered taxable income.

When are credit card rewards taxable and nontaxable?

Credit card rewards are nontaxable when you earn them through card purchases, or when you meet spend requirements to earn a bonus. They may be taxable if you earned them without having to meet any spend requirement.

For example:

  • If you earn $200 cash back after spending $10,000 on your card in a year, that $200 is not taxable.
  • If you earn 60,000 bonus points after spending $4,000 on your card within the first three months, those points are not taxable.
  • If your card provider gives you a $100 bonus because you opened an affiliated checking account, that $100 is taxable as income.
How you earned your rewardsRewards taxable?
You made purchases with your credit cards and earned corresponding rewards.No
You earned a signup bonus upon meeting a spend requirement.No
Your provider gives you rewards for opening or switching an account.Yes

Why are credit card rewards usually not taxable?

Credit card rewards are usually considered rebates rather than income, and are not taxed.

The exception is if you received rewards outside of your normal spend or without having to meet spend requirements. In this case, your rewards are considered taxable income.

Are business credit card rewards taxable?

Business credit card rewards may be taxable if you receive them outside of normal spending or without having to meet spend requirements. In this sense, they’re similar to personal-card rewards for tax purposes.

There is an interesting quirk with business cards, however. You must eliminate the value of rewards when claiming deductions — both when you use rewards for redemptions and when you earn rewards for qualifying spending. For example:

  • If you make a $500 purchase and pay for it partially with $100 in rewards, you can now claim a deduction of $400.
  • If you make a $500 purchase and earn $25 in rewards, you can now claim a deduction of $475.

How much will I be taxed on my credit card rewards?

The amount you’re taxed on your rewards depends on how your card provider classifies them, as well as which 1099 form you’re sent.

  • A 1099-INT form
    This means your card provider classifies your rewards as interest income. Consequently, your rewards are taxed at the rate you pay for ordinary income. Be sure to pay all relevant income taxes you owe — federal and state.
  • A 1099-MISC form
    This means your provider classifies your rewards as miscellaneous income, when you’ll pay your income tax rate plus your rate for self-employment taxes.

Note that even if your provider doesn’t send you a 1099 form, you must report your rewards on your return if they’re considered income.

Read our guide to filing your taxes online, including tax brackets to help you figure out how much you owe.

What are self-employment taxes?

These are owed by self-employed individuals — for example, freelancers and small-business owners — and are used to fund Social Security and Medicare.

Compare rewards credit cards

As mentioned above, credit card rewards usually are nontaxable. That said, don’t let taxes stop you from getting the card you want. Here are a few great credit card options for rewards.

Name Product Welcome offer Rewards Annual fee Filter values
Blue Cash Preferred® Card from American Express
$300 after spending $3,000 in the first 6 months
6% on select US streaming services, 3% on transit and US gas stations, 6% at US supermarkets on up to $6,000 annually, then 1% after that and on all other purchases
$0 intro annual fee for the first year ($95 thereafter)
Perfect for families: Get up to 6% on everyday purchases and a welcome offer worth $300. This heavy-hitter rewards card has uncontested value. Terms apply, see rates & fees
Blue Cash Everyday® Card from American Express
$200 after spending $1,000 in the first 3 months
2% at US gas stations and select US department stores, 3% at US supermarkets on up to $6,000 per year, then 1% after that and on all other purchases
$0
This everyday cashback card offers a higher than average welcome offer for no annual fee, letting you earn $200 after you spend $1,000 in the first 3 months. Terms apply, see rates & fees
Chase Freedom Unlimited®
$200 after spending $500 in the first 3 months
5% cash back on travel purchased through Chase, 5% on Lyft, 3% on dining and drugstores and 1.5% on all other purchases
$0
This solid 1.5% cashback card gets even better with the addition of up to 5% back in categories like travel, drug stores and dining.
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Compare up to 4 providers

Bottom line

Credit card rewards usually aren’t taxable. But they can be, if your card provider offers you rewards unrelated to your spending or without you having to meet spend requirements. If you’re ever in doubt, contact a tax professional.

Credit card taxes typically won’t be your biggest concern — rather, it’s best to choose the right rewards card for your needs and spending habits.

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