As we start to wrap up 2023, most of us are thinking ahead to the holidays and 2024 travel. And if you’re really a planner, you might already be gearing up for the infamous April 15 holiday: tax day.
If you’ve leaned into your credit card strategy this year and earned a ton of rewards, you might be wondering whether you’ll need to claim those rewards as taxable income when the time comes. It’s a good question, and the answer isn’t as simple as most would prefer.
Here’s what you need to know — though bear in mind that we are not tax professionals here at TPG, so if you have further questions, you should contact your certified public accountant.
Are credit card rewards taxable?
Generally speaking, most credit card rewards are not taxable. In most cases, when you have to spend in order to earn rewards, those rewards are not considered taxable income. This means standard welcome bonuses, rewards you earn on your everyday credit card spending and credit card perks like statement credits are usually safe.
The exception to this rule is any bonus you get that doesn’t require spending, including referral bonuses and automatic bonuses for opening a new bank account. Since you don’t have to spend in order to earn them, these types of bonuses are considered taxable income.
Related: Should I pay my taxes with a credit card?
Is cash back taxable?
No, in most cases. A 2010 memorandum from the IRS says cash back earned via credit card spending is not considered taxable income. However, if you receive it as part of opening a bank account where you didn’t have to complete minimum spending, you must report it as income.
Related: The best cash-back credit cards
Are business credit card rewards taxable?
Just like with personal cards, welcome bonuses and the rewards you earn from making purchases on your business credit card are not considered taxable income. However, when claiming business expenses, you can only claim the net cost of an item after any statement credits you receive as a perk from your credit card rather than the full cost before the credits are applied.
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Related: The best business credit cards
Which credit card rewards are taxable?
While most rewards aren’t taxable, one type is: referral bonuses you receive when someone applies for a credit card through your referral link. Since you don’t have to spend in order to get these rewards, the bonus is considered income. (Your friend, conversely, wouldn’t need to pay taxes on the bonus they earn for completing that spending.)
Related: How to refer friends and earn points, miles or cash credits
Will I receive a 1099 for my credit card rewards?
Sometimes, you’ll receive a 1099-MISC or a 1099-INT if a card has given you taxable rewards. A 1099 is a so-called information return document for the IRS that shows the income you’ve received from a third party.
However, not all issuers will send these forms. We recommend keeping your own notes since you’ll still need to report all of your income — even if you don’t receive a 1099.
Which issuers send 1099 forms?
Most major issuers send 1099s for referral bonuses worth $600 or more. If you don’t get a 1099, you can request one from your bank or estimate the income. Even if the bank doesn’t send one, you must still report the income to the IRS.
In spite of the general rule that you’ll only get a 1099 for referral bonuses, Capital One has also sent them in recent years for statement credits. They appear to be treating these as gifts, which can be taxable.
Historically, banks have treated statement credits and bonus points as rebates on spending, which the IRS does not view as taxable income. So far, we haven’t seen any other major issuers make this move, but we’ll be keeping an eye on it. If other issuers switch to this strategy, it will play a part in evaluating a card’s net value year over year.
Related: Capital One expands benefits it considers taxable
Where do I report 1099 income?
You should include the income under the heading “Other income” on line 8z of your 1040 as reported under the “Other income” from Schedule 1, line 22.
Are bank account sign-up bonuses taxable?
Yes. Bank account sign-up bonuses are similar to credit card referral bonuses — you don’t have to spend in order to earn them. This means they’re taxable, according to the IRS. Just like with credit card referral bonuses, there’s no guarantee you’ll get a 1099 for these bonuses, but you’re expected to claim them as income regardless.
Bottom line
Even if you’ve earned thousands of dollars worth of rewards this year through credit card welcome bonuses and everyday spending, you won’t have to pay taxes on those rewards. However, you must pay taxes on any rewards you earn from referral bonuses or opening a new bank account. Be sure to keep your own notes on these sources of income, as the bank may not send you a 1099 for these earnings.
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