Do Credit Card Rewards Get Taxed?

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The tax season is around the corner — here’s what rewards credit card users need to know before they file their returns.

Key points

  • Rewards credit cards allow consumers to earn valuable rewards as they use their cards to spend money.
  • In most cases, credit card rewards aren’t taxable — as long as the cardholder is spending money to earn the rewards.

Many people use rewards credit cards for their spending to earn rewards. Some credit cards offer cash back, while others earn points and miles cardholders can redeem for flights, hotels, or a statement credit. These rewards can make a credit card more valuable and help you earn more money or make future expenses more affordable. If you’re new to earning credit card rewards, you may wonder if credit card rewards get taxed. Here’s what you need to know.

Credit card rewards aren’t taxable

Did you earn credit card rewards in the last year? Note that the IRS doesn’t consider credit card rewards to be taxable income. The agency classifies credit card rewards as a rebate, since you spend money to earn them. That’s good news for taxpayers earning credit card rewards because they won’t have to worry about paying taxes on them.

Most credit card welcome bonuses aren’t taxable

You may also be wondering whether credit card welcome bonuses are taxable. Many rewards credit cards give new cardholders a chance to earn many points, miles, or cash back once they meet a set minimum spend. A welcome bonus like this is a great way to boost your rewards and gives an excellent incentive to open a new credit card.

Like credit card rewards earned through spending, most welcome bonuses aren’t taxed. That’s because most credit card issuers require you to spend a minimum amount of money within a set time to qualify for the bonus. Since you’re spending money to earn them, this type of bonus also qualifies as a rebate, not income. However, if there is no minimum spend requirement in place to earn a welcome bonus, taxpayers may be taxed on the bonus.

Referral bonuses are taxed

There is one type of bonus or reward that you will need to pay taxes on. If you refer a friend or family member to a particular rewards credit card and earn a bonus for the referral, the bonus is considered taxable. Why? Because you didn’t spend money to earn it, so it’s not considered a rebate.

You might get a tax form if you earned a referral bonus during the tax year. It’s worth noting that not all credit card issuers send tax forms for this type of bonus. You can keep an accurate record of any referral bonuses you earn throughout the year to report the income at tax time.

Tax laws can change

Staying on top of any tax law changes each year is essential. While most credit card rewards (beyond referral bonuses) aren’t considered taxable income, it’s possible that tax laws could change in the coming years. It’s good practice to review your knowledge of current regulations before you file your annual tax return.

If you need help filing your taxes, that’s okay. Check out our list of the best tax software to find the right solution. Many taxpayers find the tax-filing process is simplified and less stressful when they use software to file.

Don’t miss out on the chance to earn rewards

If you’re already using credit cards in your daily life but aren’t earning rewards, you’re missing out. Many cards allow you to earn rewards by using your credit cards to pay for travel, gas, groceries, and everyday expenses. If you don’t want to pay an annual fee, you may wish to explore no annual fee credit cards that offer rewards as well.

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