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With credit card sign-up bonuses ranging from 10,000 – 100,000 points or miles, these rewards can be redeemed for hundreds of dollars. A credit card with an offer of 50,000 bonus points can be worth at a minimum of $500. Are these credit card rewards taxable?
The IRS views these rewards as earned from your spending. You get the credit card rewards after you have made a purchase, making this is a financial transaction. So the rewards are considered a rebate and are not taxable. The IRS does not consider the rewards as a gain in income; instead they consider it a discount on the purchase.
Other rebate company offers, such as in-store coupons, buy one – get one free, or free nights, are also deemed to not be income but are a “purchase price reduction.” The same is true for credit card rewards, the cash back reward only deducts the price you paid for a particular item. The bottom line is that credit card cash back or travel rewards are not considered to be taxable.
Where the IRS seems to change it’s view is when you receive an incentive to earn a cash reward for opening a checking or savings account with a bank and no transaction is needed to get the reward, except for signing up. In fact the IRS considers these rewards as an addition to your income and you’ll receive a 1099-MISC tax form.
Many of your rewards programs allow you to donate your rewards to a charity. Your points or miles are valuable and your spending over time with a credit card can add up to a considerable amount of earned rewards. This is important to ask your tax advisor if that donation is considered tax-deductible.
So what does all this mean? The IRS appears to take a reasonable understanding of the true value of bonus points and/or cash back rewards. Of course, there are always exceptions so a quick-call to your tax advisor is always a good idea (just in case).
Barclaycard Arrival Plus® World Elite Mastercard®
- Enjoy 40,000 bonus miles after you spend $3,000 on purchases in the first 90 days – that’s enough to redeem for a $400 travel statement credit toward an eligible travel purchase.
- Earn 2X miles on all purchases
- Get 5% miles back to use toward your next redemption, every time you redeem
- Miles don’t expire as long as your account is open, active and in good standing
- No foreign transaction fees on purchases made while traveling abroad
- 0% introductory APR for 12 months on Balance Transfers made within 45 days of account opening. After that, a variable APR will apply, 16.99%, 20.99% or 23.99%, based on your creditworthiness. There is a fee for balance transfers
0% on balance transfers for 12 months
16.99%, 20.99%, or 23.99% variable
$0 first year; then $89