Are Credit Card Rewards Taxable?

Another frequent question that comes up in the credit world is, “Are credit card rewards taxable?” Often, this question heats up around April, right before taxes are due.

And with all the rewards credit cards around these days, it’s no wonder consumers are concerned that they may be taxed for things like free airline tickets and cash back rewards.

Credit Card Rewards Aren’t Income

But credit card rewards aren’t considered income, and are in fact a type of rebate; the credit card issuers even refer to them as such.

American Express lists their cash back reward under fees and adjustments, so again, it doesn’t appear to be income.

If you think about it, by electing to use your credit card to make purchases you could be making with cash or a debit card, you are receiving a price reduction or discount from the card issuers.

While it’s not as direct as normal rebates, which typically come from the manufacturer, it draws enough parallels to be treated similarly.

Additionally, the cost of the items we buy is higher because of the presence of credit cards.  If it weren’t for credit cards, everyday goods would be cheaper because merchants could charge us less.  So we’re essentially getting our money back by using credit cards.  Those who pay with cash simply lose out as a result of the higher prices.

So you shouldn’t worry about paying taxes on credit card rewards, as they’re just a discount/rebate you receive for using your credit card.

Unfortunately, the IRS hasn’t made it 100% clear if this is indeed the case, so questions and worries still persist.

I did a search over at the IRS website and couldn’t find anything that addresses this question specifically.

The IRS Wants You to Earn Credit Card Points!

Funnily enough, the IRS actually promotes the use of a credit card to file taxes electronically, and notes that you could even earn miles, points, rewards or cash back from card issuers!

Heck, if they’re saying so, it must be a safe tax-free move.

That’s the way I’m treating it unless I hear otherwise, though I would expect an advisory regarding the topic in the near future as rewards become more commonplace.

As always, it is recommended that you consult your accountant or tax adviser to be 100% certain any and all credit card rewards aren’t taxable to avoid any surprises.

Related: Best cash back credit card.