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Are Credit Card Rewards Taxable?

Credit card companies will do almost anything to get you to sign up for their cards. Some offer travel miles and others use sign-up bonuses to entice customers. No doubt those incentives sound great and they may have tricked you into applying for a credit card or two. There are plenty of benefits to earning rewards. But there’s one downside that you’ll have to consider: Your credit card rewards may be taxable.

Which Credit Card Rewards Are Taxable?

The only rewards that have to be reported to the IRS are those that are considered income. Taxable credit card rewards include any bonuses or gifts you receive just for signing up for a card, including bonus travel rewards (especially if they can be reported as a monetary amount). But since assessing the value of airline miles can be tricky, credit card issuers often have to use discretion when deciding how to report taxable rewards to the federal government.

Generally, credit card issuers are required to report awards and prizes to the IRS when the value of those rewards is higher than $600. That means that if you received a $650 or $800 sign-up bonus, your credit card company will send you a 1099 form.

Which Credit Card Rewards Aren’t Taxable?

Are Credit Card Rewards Taxable?

The points or miles you earn from making purchases with your rewards credit card are usually tax-free. According to the IRS, those rewards are considered discounts rather than income. Sign-up bonuses aren’t taxable either if you have to spend a certain amount of money in order to qualify for the reward.

If you’re not sure whether your credit card rewards are taxable, it’s best to review your credit card terms and conditions. If your paperwork doesn’t say that you need to report your rewards to the IRS and you don’t receive a 1099-MISC form, you probably won’t have to worry about mentioning your credit card rewards when you file taxes.

Related Article: 4 Perks That Can Come With Travel Rewards Cards

What To Do If You Get a 1099-MISC Form

If you receive a 1099 Form in the mail, it’s best to avoid chucking it into the trash. The IRS will get a copy of the form as well. So if you fail to report your taxable credit card rewards, you could get hit with a penalty.

When you’re ready to complete your income tax return, you’ll include your taxable rewards as you add up the total amount of income you’ve received for the year. If you need help preparing your tax return, you can meet with a tax accountant.

Earning Rewards for Business Purchases

Are Credit Card Rewards Taxable?

Rewards from business credit cards are treated differently than rewards earned while using personal credit cards. Your rebates must be subtracted from the cost of the items you’ve purchased and reported. If you’re trying to get a tax break for your business expenses, your rebate reduces the amount of money you can deduct on your tax return.

If you’re reimbursed for business-related items you’ve purchased with your personal credit card, the money you receive from your boss won’t count as income. But the credit card rewards you earned through the transaction may need to be reported.

Related Article: Can You Invest With Credit Card Rewards?

Bottom Line

Not all credit card rewards are taxable. That’s why it’s important to know which ones are subject to taxation before filing your tax return. It’s best to thoroughly read over your credit card agreements to find out whether they indicate that your rewards may be taxed. And when in doubt, you can ask a tax professional for assistance.

Update: Have more financial questions? SmartAsset can help. So many people reached out to us looking for tax and long-term financial planning help, we started our own matching service to help you find a financial advisor. The SmartAdvisor matching tool can help you find a person to work with to meet your needs. First you’ll answer a series of questions about your situation and goals. Then the program will narrow down your options from thousands of advisors to up to three registered investment advisors who suit your needs. You can then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. This allows you to find a good fit while the program does much of the hard work for you.

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Lauren Perez, CEPF® Lauren Perez writes on a variety of personal finance topics for SmartAsset, with a special expertise in savings, banking and credit cards. She is a Certified Educator in Personal Finance® (CEPF®) and a member of the Society for Advancing Business Editing and Writing. Lauren has a degree in English from the University of Rochester where she focused on Language, Media and Communications. She is originally from Los Angeles. While prone to the occasional shopping spree, Lauren has been aware of the importance of money management and savings since she was young. Lauren loves being able to make credit card and retirement account recommendations to friends and family based on the hours of research she completes at SmartAsset.
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