Are Credit Card Rewards Taxable Income? What You Need to Know in 2025

Thomas J Catalano, a CFP and Registered Investment Adviser in South Carolina, founded his financial advisory firm in 2018. His expertise spans investments, retirement planning, insurance, and comprehensive financial strategies.

With cash-back rates soaring up to 8%, credit card rewards offer substantial benefits, especially on big purchases. While this is great for consumers, it raises questions about tax responsibilities.

The IRS provides limited guidance on credit card rewards taxation. Generally, any income received is taxable, but the nature of the reward and how it's earned influences tax treatment.

Rewards earned through spending are often treated as rebates or discounts, not income. Conversely, large sign-up bonuses or referral rewards may be considered taxable income by the IRS.

Key Points to Remember

• Taxability depends on how rewards are earned.
• Rewards earned without spending (e.g., sign-up bonuses) may be taxable.
• Cash-back credited directly to your account is usually non-taxable.
• Business credit card rewards can affect deductible expenses.

Non-Taxable Credit Card Rewards

Most rewards earned through purchases—like travel points, airline miles, or cash back applied as a statement credit—are not taxable. These rewards are considered post-purchase rebates.

Sign-up bonuses are more complex. If given as cash simply for opening an account without spending, the IRS may classify them as unearned income.

Cash-back rewards credited directly to your card are generally treated as discounts and are not taxable.

When Credit Card Rewards May Be Taxable

Tax concerns usually arise when rewards are paid out in cash. Sign-up bonuses given without purchase requirements and cash-back payments sent as actual money may be taxable.

If you earn $600 or more in taxable rewards, your credit card issuer will send you a 1099-MISC form. Even if you earn less but receive cash bonuses, you are still responsible for reporting and paying taxes on that income.

Understanding Form 1099-MISC and Rewards

Receiving a 1099-MISC form from your credit card company means the IRS expects you to report that income. This form is issued when taxable rewards exceed $600.

Do not ignore a 1099-MISC related to rewards. Consult a tax professional to avoid penalties, as the IRS is actively monitoring income reporting from these sources.

Case Study: American Express and Taxation of Rewards

In 2021, investigations revealed that American Express advised business owners to use its wire service, deduct fees as business expenses, and convert rewards points to cash via personal cards—raising tax concerns.

This practice blurred lines between rebates and taxable income since rewards were converted to cash by individuals after business transactions.

American Express discontinued this practice in 2020 and faced IRS scrutiny, highlighting the complexities of credit card rewards taxation.

Expert Opinion

Donald P. Gould of Gould Asset Management explains that rewards earned through spending are rebates, but incentives for account openings can be taxable income.

Do You Need to Report Credit Card Rewards as Income?

The IRS does not explicitly clarify this, but most experts agree that rewards earned through purchases are non-taxable rebates. However, cash bonuses without spending may need to be declared.

Will You Receive a 1099 for Rewards?

If you receive a 1099-MISC from your card issuer, you must report the income and may owe taxes. Seek professional advice to navigate this.

Paying Taxes with a Credit Card

The IRS allows tax payments via credit card through authorized processors, though fees apply.

Final Thoughts

The IRS has limited guidance on credit card rewards taxation, causing confusion. Generally, rewards earned through spending are not taxable, but cash bonuses and rewards exceeding $600 may be.

When in doubt, consult a tax expert or contact the IRS to ensure compliance.

Correction—Jan. 30, 2023: Previously, it was incorrectly stated that rewards under $600 are not taxable. All taxable rewards must be reported regardless of 1099 issuance.

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