Credit Card Rewards, Do You Have to Pay Taxes on Them?

One common question that often comes up for credit card reward programs is if you have to pay taxes on the rewards you earn. Per the IRS, you may have to report your credit card rewards if they are the type that have been deemed ‘taxable income.’ For many cards, this won’t be the case because the IRS sees your cash-back programs and rewards as discounts, not income. However, if you got a large sign-on bonus for your card, you might have to report that as extra income.

If you use your credit card for your business, you will have to keep even better records. Any and all rebates have to be subtracted from how much is paid so that you lessen the amount that you deduct from your taxes. It means that your taxable income doesn’t increase, but your burden will because you didn’t pay the full price.

There are some types of credit card rewards that you don’t have to count as income as well, including cash-back programs, travel points, purchases made with points, and sign-on bonuses that you get after you’ve spent a certain amount of money. If you are not required to spend any money to get those rewards, however, you will have to use a 1099-MISC tax form. You will probably receive the form from the credit card company with your bonus. Sometimes the state won’t report this income to the IRS, however, and you will have to do it. Each state is different and tax laws frequently change. Note that you don’t have to actually receive any money in order to report to your taxes. Anything that is provided to you without having to make a purchase, whether it is points, gift cards, or something else, is considered taxable income. If you have questions about whether or not you have to pay, the credit card company might not be the best resource for you to go to. Instead, you should ask a tax professional.

If you are confused, and many people will be as states and companies crack down on this even more, you can always contact a professional. Don’t ignore your 1099-MISC form, even if you think your income doesn’t qualify. The IRS is always watching and they are getting better and better at tracking income from any and all of these sources. You don’t want to have to pay a tax penalty because you ignored a piece of mail you got or because you didn’t think your income counted.