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.
- 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.
|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.
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.
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 on 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.
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.
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.
Where can I file my taxes for free?
The US government offers Free File, which lets you file your federal tax return online.
How long has the IRS considered credit card rewards to be rebates?
The IRS has held this view since 2002, per Bulletin No. 2002-10.
Where can I find a copy of my credit card agreement to view details about rewards and taxes?
Your provider will mail you a copy of your credit card agreement when it sends your card to you. You can also likely find your agreement through your online account.
If neither of those options work, give your provider a call at the number listed on the back of your card.