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Do You Owe Taxes on Credit Card Rewards?

Typically, you don't have to pay taxes on earned rewards -- but that's not always the case.

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This story is part of Taxes 2022, CNET's coverage of the best tax software and everything else you need to get your return filed quickly, accurately and on-time.

You can earn a wide range of rewards through credit cards, including cash back, airline miles, welcome offers, referral bonuses and other perks. But do these earnings count as income you have to report to the IRS and pay taxes on? In most cases, the answer is no, though there are exceptions.

"Credit card rewards points and cash back are generally considered a promotional benefit or rebate and are not taxable," says David Shipper, a senior research analyst for Aite-Novarica Group, who specializes in debit, credit and prepaid card issuance. "However, there are situations where rewards might be regarded as taxable income." 

As always, your specific situation may vary, and it's always a good idea to pose questions about your particular tax exposure to a professional (or a tax software program). That noted, read on to learn about when rewards and miles can be considered taxable income. 

Read more: Why You Might Want to Pay Taxes With One of These Credit Cards

Most credit card rewards aren't taxable

As a general rule of thumb, credit card rewards earned by spending money are not counted toward taxable income. If you collect $200 in cash back for spending $1,500 in three months, for example, that wouldn't be considered taxable -- because of the spending requirement. That goes for airline miles, cash back and redeemable points, the three most prominent credit card rewards categories. And it doesn't matter how much you earn in rewards, either. 

In 2013 and 2014, physicist Konstantin Anikeev and his wife earned more than $310,000 in credit card rewards using an American Express card. Because of the IRS's policy stating credit card rewards are not taxable, the couple did not end up owing taxes on their earnings after a lawsuit reached a split decision in 2021.

"In general, the US government considers any income taxable, but there is no defined law that states what's considered income when it comes to credit card rewards," says Jim Pendergast, senior vice president and general manager for the altLINE division of The Southern Bank Company. "Many rewards are considered discounts instead of income, making them nontaxable." 

The rules change when they concern rewards given without a spending requirement or some other action on your end, however. 

When rewards are taxable

If you earn rewards with your credit card free without any strings attached -- free from any spending requirements -- they may be considered taxable. For example, if you sign up for a new credit card with a no-strings-attached $500 welcome bonus -- where you get $500 simply for opening up the account -- that money may technically be taxable. 

The same goes for a referral bonus. If you receive a monetary bonus for recruiting someone who opens a card, you'd technically be required to report that as earnings on your income taxes.

However, Shipper also notes that there is a gray area. "If you redeem business card rewards for a personal vacation, then the rewards may be seen as income and could be taxable. Or if you attempt to 'beat the system' and purchase money orders or gift cards that are then used directly or indirectly to pay off the credit card, your rewards gains may be taxable," he says.

Do card issuers send 1099s for taxable rewards?

If you earn credit card rewards or cash back that is taxable, you may need to file a 1099 form with your tax return for the year that you earned the rewards. A 1099 is an official IRS form that proves a business paid a nonemployee. In this case, your credit card company would be the business and you'd be the nonemployee.

In the outside case that you earn $600 or more in taxable rewards, you may receive a 1099 from your credit card company. If you earn less, you'll still need to report this information on your tax return, but you won't receive a 1099. Instead, you should review your statements for the prior year to calculate how many taxable rewards (referrals or bonuses earned without a spending requirement) you've earned.

Pendergast and Shipper both expect the IRS to increase its scrutiny of credit card rewards in the future, so it's a particularly good idea to double-check your status before filing your taxes.

How do I know if I owe taxes on credit card rewards?

Unless you're collecting a serious number of referrals, you probably don't. Again, you shouldn't have to pay taxes on offer rewards -- whether they come as points, airline miles or cash back -- as long as they have spending requirements attached. Even if you earn six-figure rewards.

Credit cards that promise bonuses with no purchase necessary and credit card referrals that pay you for signing up new cardholders will require you to pay taxes. These offers are less common, but they are out there -- make sure you keep track of any taxable rewards, so you're prepared when income taxes roll around.

When tax time does come around, and you're still not sure if you owe taxes on your rewards, you might be able to find answers to your questions by using a tax software program. But it's even better to seek the advice of an accountant or other tax professional.