Comments on: Are Credit Card Rewards and Cash Rebates Considered Taxable Income?

By: Arby

Arby — Mon, 08 Feb 2010 18:26:52 +0000

what about bank promotions? I signed up for a bank account and received $100 from them. I then got a 1099-INT form from the bank stating that I now have to report the $100 as interest – and the IRS took out $15 off of my refund because of it. I’ve received actual gifts from banks and there value doesn’t get reported, so why is this any different? Also, according to what Interest Income is coming from a bank, it is bonds, savings account interest, etc NOT promotional, incentive gifts. Is the bank wrong in telling the govt I earned $100 in interest that I need to be taxed on if it was a promotional gift? Why would cash need to be reported but not actual gifts?

By: Melinda

Melinda — Sun, 17 Jan 2010 19:07:01 +0000

To Rick,
The amount the IRS is stated you purportedly earned can be removed, if you let the IRS know that you did not receive that in income, but it was debt reduction/elimination. Use Form 982 OMB No: 1545-0046 “Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjusment)”. [You should have seen my face, when, after a foreclosure and bankruptcy, they told me I owed like 400K!! because the bank 'forgave'.] Note: You MIGHT need to amend your Federal and State Tax Forms for the year, however, traditionally I would not think so to just add this form. If you don’t know how to do this, check in your local area for free tax help…it should be readily available now. Form 982 is self explanatory and relatively easy. Good luck.

By: Gabriel

Gabriel — Tue, 29 Dec 2009 22:14:47 +0000

I work for a mid-size company with about 350 employees. This company utilizes a credit card to pay most of its vendors and earns a substantial amount of reward points (about 1M to 2M a month), this turns into about $200K to 300K annually in various types of rewards points which the owner of the company utilizes for person reason and does not declare on his taxes. After reviewing company financials I noticed for the last decade over 2.5M in revenue has been made with the these points but not taxes have been paid on them. Please note the cards are given out to employees at times but mostly utilized by the company owner. Are taxes due on these reward points?

By: Andrew Choi

Andrew Choi — Fri, 09 Oct 2009 17:31:10 +0000

@raymond

i want to clarify that CITI doesn’t have 5% cash back, rather they offer 5 points on certain purchases. the redemption rate for citi thank you points is not uniform and closer to a maximum of 140points to every dollar. at this rate the cash back rate would be ~3.6%

Personally, I find their redemption rates confusing and prefer cards with no points involved.

By: Raymond

Raymond — Sat, 03 Oct 2009 17:48:10 +0000

Hi John, well the "best credit card" offering the best rewards is relative and depends on what you wish to accomplish. Personally, I really like the Citibank Forward Card as it offers 5% cash back rebates at all restaurants, eateries, coffee shops, book stores, movie theaters, etc. But then, eating out is a major monthly expense for me. It's a Mastercard that's accepted everywhere.

By: John

John — Sat, 03 Oct 2009 17:36:00 +0000

Does anyone know what is the best credit card with 5% cash back on it & no annual fees? Maybe anyone who knows someone who has it already so they can share the pros and cons?

I see Discover pop up in the list when I google it, but not sure of this card is widely accepted in most stores (just as AMEX has some stores not accepting it)

thank you!

By: Diana

Diana — Sat, 30 May 2009 16:08:13 +0000

Savings, MM and CD’s.
So my question to Raymond or anyone knowlegeable is:
1. How do you ensure you will NOT pay taxes on the interest made on these vehicles when you OPEN and ONLY deposit REBATES into these accounts?
2. Can you notify and contract with the financial institution for this account to be TAX EXEMPT?

By: Rick

Rick — Fri, 22 May 2009 19:05:36 +0000

“has any one ever heard of this ? i left my Macys credit card go 7 years a go and i guess the bank that offered the card payed them off and the irs is now charging me 214.00 for income that i didn’t file on my income tax this year the pay off was ABOUT 2200″

Yep

http://www.irs.gov/publications/p525/ar02.html

Look under:
“Miscellaneous Income”
“Cancelled Debts”

You’re going to be seeing a LOT of this in future…

By: D.Graham

D.Graham — Thu, 21 May 2009 20:35:34 +0000

has any one ever heard of this ? i left my macys credit card go 7 years a go and i guess the bank that offered the card payed them off and the irs is now charging me 214.00 for income that i didn’t file on my income tax this year the pay off waS ABOUT 2200

By: Rick

Rick — Wed, 20 May 2009 19:29:54 +0000

We are putting together a Rewards Program whereby participants earn “Points” which are then “Translated” into dollars we load onto a co-branded Visa “pre-paid” gift card. Is there a taxable moment when this card is used?

If so, would we be required to issue a 1099 to these cardholders or simply make the cardholders aware that there are tax implications in the use of the cards in the “Terms & Condiitons” of the program?

Many thanks ! This is really a gray area, isn’t it ?

By: Raymond

Raymond — Fri, 10 Apr 2009 14:40:22 +0000

Alan,

As it currently stands, all credit card rewards, whether they be credit card cash back points, cash rewards, airline miles, or redeemed vacation reward trips – every single one of these are generally regarded as non taxable income. Most tax experts regard all of these as discounts and purchase incentives in the nature of coupons – promotions that are not subject to income taxation requirements.

It is immaterial if you use your personal credit card or if you use your business credit card to make such reward earning purchases. Neither result in taxable income.

Of course…it remains to be seen if the IRS will address this issue more clearly in the future. It is theoretically possible for them to rule otherwise in the future and render these credit card rewards and rebates taxable, but I HIGHLY doubt it.

By: Alan

Alan — Thu, 09 Apr 2009 20:34:55 +0000

What if an employee uses their personal credit card for large sums of business expenses. Are the rewards they receive from this usage a taxable event on behalf of the company? Would the rewards be considered taxable income?

By: Ryan

Ryan — Mon, 09 Feb 2009 13:49:45 +0000

I really like what you are doing with your blog. The articles I’ve read have been very informative and a great resource as researching a lot of this stuff would take hours. Most people would never think twice about not reporting the rewards cash they receive, but as an aspiring CPA, I am glad you looked into this. Thanks for your diligence. I have subscribed via google reader, and look forward to reading more of what you have to say.

By: Raymond

Raymond — Fri, 19 Dec 2008 23:41:37 +0000

Aaron, you don’t have to report anything to the IRS regarding your credit card usage. Credit card usage and credit card rewards in terms of cash back rebates, frequent airline miles rewards, and points are not taxed. They considered to be discounts applied against the products purchased with the credit card.

Your credit card balance and usage history is documented automatically by the big 3 credit rating agencies of Equifax, Experian, and TransUnion however. Just keep paying off your monthly balances on time and you’ll be ok. No need to worry about reporting anything to the IRS.

By: Aaron

Aaron — Fri, 19 Dec 2008 23:13:50 +0000

But what I want to know is. When you have a credit card and you use it. Do you report that to the IRS and do they tax you. I am a dependent on my parents and they don’t know I have a credit card yet, because college had a lot of unexpected expenses and I did not want to stress them out financially. I have been paying the credit card off slowly, but surely. Do I report the credit card to my parents for the IRS? or does the IRS not need to know or tax me or them on it?