Are Credit Card Rewards Taxable?

Are you racking up credit card rewards?

If you’ve been taking advantage of credit card rewards, it’s important to know which are taxable. According to Forbes, they fall into two categories: those that are treated as rebates on spending and those that are treated as income in exchange for performing a service. The IRS requires an accounting of rewards that are income – like bank account signups or refer-a-friend bonuses. In each case, you should receive a 1099-MISC income tax form with the value of your received rewards. If earnings are less than $600, you may not receive a tax form. However, the income must still be reported and appropriate taxes paid.

Miles, points, or cash back earned on credit cards are not taxable because purchases must be made to get them. Rewards earned from traveling aren’t taxable because they’re treated like rebates. However, rewards may be taxed when earned by purchasing cash equivalents like prepaid credit card reloads or money orders. For example, one couple earned $300,000 in cash-back rewards after purchasing over $6 million with credit cards.

The IRS frowns on large dollar amounts of manufactured spending. Small business owners may have special tax implications. Keep good records and do your research before filing to avoid making a mistake, and remember, it’s always best to consult a professional if you’re unsure what to report.

Has your desire for rewards led to credit card debt? Christian Credit Counselors can help. They’ll create a debt management plan specifically for you. For more information, visit online at crown.org/ccc.