Are Your Credit Card Rewards Taxable?
The IRS treats credit card rewards in two distinct ways: as a non-taxable **rebate** or as taxable **income**. This guide breaks down the rules and helps you understand your potential tax liability.
The Bright Line: Rebate vs. Income
The tax treatment of a reward depends entirely on whether it's tied to your spending. Rewards earned from purchases are considered a price adjustment (a rebate), while rewards received without a corresponding purchase are considered income.
✔Generally Non-Taxable
These rewards are considered a **rebate** or a reduction in the purchase price of goods and services.
- Standard Cashback from purchases
- Points/Miles earned from spending
- Welcome bonuses that require meeting a minimum spending threshold (e.g., "Spend $3,000, get 50k points")
❌Generally Taxable
These rewards are considered **income** because you performed a service or received a perk without a related purchase.
- Referral bonuses (compensation for acquiring a customer)
- Bonuses for opening an account with no spending requirement
- Prizes from sweepstakes or drawings
- Bonuses for downloading or trying an app
Test Your Reward: Interactive Tool
Not sure if your reward is taxable? Select a scenario below to see the official IRS treatment and the reasoning behind it. This tool helps clarify the rules in practical terms.
The Limit of the Rebate Rule: *Anikeev v. Commissioner*
A landmark 2021 Tax Court case established that even rewards from spending can be taxable if the transactions involve "manufacturing spend" with cash equivalents (like money orders) rather than purchasing actual goods or services. The court looks at the substance of the transaction, not just the form.
The Court's Finding
The court ruled that rewards from buying **Visa gift cards** were non-taxable "product" purchases. However, rewards from buying **money orders** were taxable because they were "cash equivalents" used in a scheme to generate rewards, not for genuine consumption. This creates a new test: are you buying a product or just churning cash?
Chart illustrates how rewards from "manufactured spend" can be deemed taxable, unlike rewards from genuine product purchases.
Who is Affected? Impact on Stakeholders
Consumers
Must be aware of the rules to avoid surprise tax bills, especially from referral programs. Needs to track and report taxable rewards even if no Form 1099 is issued.
Card Issuers
Face compliance costs for tracking and issuing Form 1099s. May cap taxable bonuses (like referral programs) below the $600 reporting threshold to reduce administrative burden and customer friction.
Influencers
Referral income is considered self-employment income, reportable on Schedule C and subject to self-employment tax. Meticulous record-keeping of income and expenses is essential.
The 1099 Reporting Flow
Taxable reward is earned (e.g., referral bonus)
↓
Is the total value from one issuer ≥ $600 for the year?
↓ Yes
Issuer sends Form 1099-MISC/NEC to you and the IRS.
↓ No
No 1099 is sent, but you must still report the income.
