The short answer is that most people never owe tax on credit card rewards. The longer answer is that the reason matters, because it tells you which situations are different.
The rebate principle
Rewards earned by spending money are generally treated as a reduction in the purchase price rather than as income. Spend $100 and get $2 back, and the position is that you paid $98 — not that you earned $2.
This covers the overwhelming majority of credit card rewards: cash back on purchases, points earned on spending, miles earned on spending, and sign-up bonuses that require you to spend a defined amount to qualify.
No tax form is issued for these, and there is nothing to report.
Where it differs
| Reward | Typical treatment |
|---|---|
| Cash back on purchases | Rebate — generally not income |
| Sign-up bonus requiring spending | Rebate — generally not income |
| Bonus for opening an account with no spending required | May be treated as income |
| Referral bonuses | Frequently reported as income on a 1099-MISC |
| Bank account opening bonus | Typically reported as interest or other income |
| Rewards on business expenses | Generally reduces the deductible expense |
The dividing line is whether you had to spend to get it. A reward that is a discount on a purchase is a rebate. A reward you receive simply for existing as a customer looks more like income.
If you receive a 1099
An issuer that treats a reward as reportable income will send you a form — commonly a 1099-MISC or 1099-INT — and send a copy to the IRS. Referral bonuses and certain promotions are the usual triggers.
If you get one, report it. The IRS has the same copy. If you believe it is wrong, contact the issuer to request a corrected form rather than simply omitting it.
Business cards
This is the situation most likely to catch someone out. If you deduct a business expense and earn rewards on it, the general principle is that the rewards reduce the deductible amount.
Spend $10,000 on deductible business expenses and earn $200 in cash back, and the deductible amount is generally $9,800. In practice many small businesses handle this by simply recording the net cost.
This is exactly the kind of question where a tax professional is worth the fee, particularly if the amounts are material.
Bank account bonuses are different
A bonus for opening a checking or savings account is not a purchase rebate — there was no purchase. Banks generally report these as interest or other income, and you will typically receive a 1099.
This is worth factoring into the decision when comparing account bonuses. A $300 bonus is worth less than $300 after tax, while $300 of credit card cash back generally is not reduced.
