Do You Have to Pay Taxes on Credit Card Bonus Offers?

are credit card rewards taxable

We’re full swing into tax season, and you’ll either have received — or soon will be receiving — all the necessary forms you need to file your 1040.

If you worked a salaried job last year, you’ll receive your W-2 form. If you’ve done some freelance or contract work, those earnings will be listed on your 1099. But does that cover all your income for 2016?

Think of other money you may have received last year. Like many consumers, you may have cashed in some credit card rewards or signed up for a new card and taken a nice introductory bonus.

Are credit card rewards taxable? If they are and you don’t report them, you could be on the hook to the IRS for unpaid taxes. If they’re not taxable and you report them to IRS, you might pay more than you have to.

The simple answer: Credit card rewards and bonuses sometimes count as taxable income. It all depends on how you earned them.

Here’s what you need to know about credit card rewards before filing your taxes.

Credit card “rebates” can’t be taxed

Conventional credit card rewards — the cash back you receive, or the miles and points you accrue — are generally considered a discount or a rebate by the IRS. They are not considered income, making them tax-exempt.

Say you spent $1,000 at the supermarket with the Blue Cash Preferred card from American Express, which gives 6 percent cash back on grocery shopping. The $60 cash back you receive off your total spending balance is technically a rebate. You wouldn’t need to report that on your tax return even though it’s extra income in your pocket.

Sign-up bonuses that require you to spend a certain amount of money in a specified timeframe to receive a reward may also be tax-free.

For example, on the Chase Sapphire Reserve card, if you spend $4,000 within the first three months of having the card, you’ll receive 50,000 points — that’s estimated to be a value of $750. Cash in those rewards and they won’t need to be reported as taxable income.

The rationale, as some have noted, is that credit card rewards work similarly to a manufacturer’s mail-in rebate, also non-taxable. In the two cases mentioned above, the rewards require you to make a financial transaction (like fulfill a spending minimum) to earn a small portion back.

If you’ve spent money to receive rewards on your credit card, you’re in the clear.

Taxable exceptions to the rule

When no purchase is required to receive a reward, your credit card rewards could be counted as taxable. Technically, because you’ve spent no money to get money, it’s counted as income.

What if you received a cash reward after signing up for a new credit card, savings, or checking account — are credit card rewards taxable then?

It may count as taxable income and you’d receive a 1099 in the mail. That will list the total amount of pre-tax (gross) income that you would declare on your income taxes, just like you would for freelance work.

May is the operative word here, since you may — or may not — receive a 1099 tax form from your credit card issuer, depending on their own rules and regulations. 1099s are usually issued when you’ve earned more than $600 in income, though this may vary when it comes to redeeming rewards.

This could also apply for non-cash rewards, as well — if it’s a sign-up bonus that involves airline miles or other gifts with a cash value, they could qualify to be taxed. Your bank or credit card issuer is obligated to notify you which rewards may be taxable, so if you receive rewards and then a 1099 in the mail, it won’t come as a surprise.

In 2012, Citibank ran a sign-up promotion offering any new customer 25,000 American Airlines frequent flier miles if they opened an account. This caused some ire among users who took advantage of the deal and later received 1099s for them.

To their chagrin, they discovered Citibank applied a cash value exceeding $600 to the sign-up bonus, which customers were unaware of. Subsequently, they sued the bank, alleging the information wasn’t provided up front. The court sided with Citibank.

Business vs. personal credit card rewards

Taxes get a little trickier when it comes to earning rewards on business credit cards. The caveat with business credit card rewards isn’t that they’re taxed, but they can reduce the amount of tax deductions you can make.

Say you charged $700 to your business card, and you received a $20 cash back reward on that purchase. If you want to write off that purchase as a business-related tax deduction, you’d only be able to claim $680 — the $20, while not considered taxable income, isn’t allowed as part of your deduction.

Are credit card rewards taxable?

Here’s what you need to remember this tax season: If you receive any rewards after you’ve made purchases to your card (meaning cash back rewards or points accrued after meeting a spending minimum), you won’t be taxed.

If you receive a bank or card issuer bonus for simply signing up for an account, it may or may not be taxed. You could receive a 1099 whether or not the rewards have exceeded $600, but it all depends on your card issuer.

In this case, it may be advisable to report the income even if you haven’t received the necessary 1099 form, since it can avoid problems with the IRS later.

Before preparing your tax return (and even better, before you open a new rewards card), consult the terms and conditions of your card contract to see what your card provider’s rewards structure is, and their policies on reporting rewards as taxable income.

Interested in a personal loan?

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LenderRates (APR)Loan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Finance Lender Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)
  2. Personal Loans: Fixed rates from 5.49% APR to 14.24% APR (with AutoPay). Variable rates from 5.29% APR to 11.44% APR (with AutoPay). SoFi rate ranges are current as of December 1, 2017 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 5.29% APR assumes current 1-month LIBOR rate of 1.34% plus 4.20% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.

2 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate Disclosure: Variable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2017, the one-month LIBOR rate is 1.23%. Variable interest rates range from 6.02% – 15.97% (6.02% – 15.97% APR) and will fluctuate over the term of your loan with changes in the LIBOR rate, and will vary based on applicable terms and presence of a co-applicant. Fixed interest rates range from 5.99% – 16.24% (5.99% – 16.24% APR) based on applicable terms and presence of a co-applicant. Lowest rates shown are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with Citizens Bank at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, Citizens Bank checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Benefit: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
7.39% - 29.99%$1,000 - $50,000Visit Upstart
5.29% - 14.24%1$5,000 - $100,000Visit SoFi
8.00% - 25.00%$5,000 - $35,000Visit Payoff
5.99% - 16.24%2$5,000 - $50,000Visit Citizens
5.99% - 35.89%$1,000 - $40,000Visit LendingClub
5.25% - 14.24%$2,000 - $50,000Visit Earnest
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