Are credit card rewards taxable?

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Are credit card rewards taxable?

Postby tgmind » Fri Nov 12, 2010 5:57 am

I have a small business and spend about 200k a year on my credit card. If I use a cash back card will I have to pay income tax on the rewards? I assume I will, and that's why i choose an airline card.

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Postby Cucumber » Fri Nov 12, 2010 3:57 pm

I *might* be wrong but I think the IRS views credit card rewards as a rebate (not taxable income) but that could change in the future
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Postby DoingHomework » Tue Nov 16, 2010 4:40 pm

I think that is correct. It would not make sense to tax credit card rewards. It would open up a big can of worms since people would start deducting what they spend to earn the income (and this would be reasonably consistent with the law so it would likely end up in court rather than just being disallowed by the IRS.) It would create a back door for deducting credit card interest and fees!

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Postby jeffysdad » Wed Nov 17, 2010 4:24 pm

I don't think CC rewards are taxable, but as a side note I read the other day that banks that offer bonuses for opening new checking accounts are reporting that bonus money they pay you to the IRS.
American Express: Blue Cash Preferred (groceries, 6%; gas, department store, 3%); Gold Delta SkyMiles (Delta Air Lines, 2 miles/dollar, free checked bag).
US Bank: Cash+ (utilities, phone, internet, restaurant, 5%; drugstores, 2%).
FIA Card Services: Fidelity Amex (everything, 2%); Fidelity Visa (everything, 1.5%).
Chase: Freedom (rotating, 5%); Amazon (, 3%); PriorityClub (IHG hotels, 5 points/dollar); Sapphire (not in use).

*All cards are registered with PriorityClub IDine program for 8 points/dollar at participating restaurants.

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Postby Mogul of Pineapples » Sat Nov 20, 2010 4:18 pm

I read the other day that banks that offer bonuses for opening new checking accounts are reporting that bonus money they pay you to the IRS.

When I opened a BofA savings account in 2005 I was shocked to see the $50 prepaid gift card bonus was reflected on my interest statement that was reported to the IRS.

If and when credit cards rewards become taxable you can bet we will see a shift from cash back to airline and other reward cards.
Disclosure: I am a moderator/paid staff of this site, which does have advertising relationships with some credit cards that are discussed and linked to. Regardless, anything I say is my honest opinion.

Current Cards:
American Express: Blue Cash, Simply Cash Bank of America: WorldPoints Platinum Plus Chase: Amazon, British Airways, Cash Plus Rewards, Freedom, Ink Cash Citi: Thank You Premier, Dividend Platinum Select Discover: More
Primary Everyday Card: American Express Blue Cash
Primary Travel Card: Chase Sapphire Preferred

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Postby infomaniac » Thu Nov 25, 2010 10:38 am

If credit card cash back is taxable then there's a mighty high number of folks who will be in trouble with the IRS. Not once have I heard of someone declaring cash back on a tax return and if it was taxable we should be receiving an interest statement at the end of the year as is done with savings account interest.

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Postby Mr Chopstix » Sat Dec 11, 2010 4:43 am

If credit card cash back is taxable then about 1/2 the population is cheating on the taxes. Never once have I heard that cash back should be claimed.

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Postby dougw » Sun Aug 26, 2012 6:53 pm

The difference is that the general population might only get $100 a year in cash back on credit card rewards where business owners have the spending power to potentially receive tens of thousands of dollars in cash back rewards. Only when you get to that point do you seriously start to be concerned if they are taxable or not. I've found some research on rewards taxation and it seems to be some gray area, perhaps the best advice is if you have a lot of spending power, focus on non-cash rewards just to be safe, and if you're a regular joe, don't worry about it.

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Postby murakami » Sun Aug 26, 2012 8:06 pm

I read something a while back that, if I recall correctly, said that if you get a gift (something for simply opening the account) that becomes taxable but rewards earned as credit for transactions (including triggered sign up bonuses) were not taxable.

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Postby DavidNY » Sun Aug 26, 2012 9:50 pm

There's a good post about this topic here.

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