Credit Card Rewards – Taxable?

Cash back on credit cards sounds like free money, right?  It makes a lot of taxpayers feel like they are getting away with something, since there usually is no such thing as free money to the IRS.  Through competition between credit card issuers for prized consumers, the amount of cash back rewards are continuing to increase.  It brings up a lot of discussions in the accounting and finance industry about whether the IRS will remain with their current stance about credit card rewards normally being treated like rebates, or if they will start taking a closer look in this area.  Not all credit card rewards are treated equally, however. Some credit card issuers have added verbiage to the paperwork indicating that there may be a 1099 issued, and that the credit card holder would be held responsible for the tax implications.  Some individuals have sued credit card issuers for not presenting that information up-front, and many others have indicated they will no longer sign up for credit cards with those companies (mainly BoA and Citi, according to the research).

So what is the main point?  If it is a business card, the reward is treated like a rebate that is offsetting an expense (and therefore decreases your deduction).  If you are issued a 1099, you may need to record it as income instead.  And if a personal card is used for business expenses, it sounds like the employee is not at this time required to report that as income on their return.  In the end, talk to your tax professional to make sure that you are reporting your taxes correctly.

 

Check out some of the articles that I found really helpful with this topic:

NerdWallet – Are My Credit Card Rewards Taxable?

TaxAct – Will Credit Card Rewards Soon be Taxable?