One of the biggest benefits of a good rewards credit card is how it puts money back in your bank account. Between big-ticket welcome bonuses and generous rewards rates on everyday purchases, you could easily rack up hundreds of dollars in rewards each year with the right credit card. But does Uncle Sam take a cut of your credit card rewards come tax time?
Below, CNBC Select has the details you need to know to understand when you will and won't owe taxes on your credit card rewards.
Are credit card rewards taxable?
Rewards from spending
Generally, the IRS doesn't classify the credit card rewards you earn from purchases as income. This is because they are considered a discount or rebate. You pay with a credit card and receive a small percentage back.
The same applies no matter what form your rewards take. So you typically won't owe taxes on the hotel points or airline miles you earn from your favorite travel credit card. And cash back becomes a flexible, tax-free way to pay for just about anything. If you like to keep it simple, you can't go wrong with a flat-rate 2% cash-back card, like the Citi Double Cash® Card (1% cash back when you buy, plus an additional 1% as you pay for those purchases) or the Wells Fargo Active Cash® Card.
The Citi Double Cash® Card is one of the best no-annual-fee cash-back cards thanks to its straightforward rewards structure.
- Balance transfers get a long intro APR
- Generous flat-rate cash-back rewards structure
- No annual fee
- Travelers face a foreign transaction fee
- Intro APR only applies to balance tranfer
Highlights
Highlights shown here are provided by the issuer and have not been reviewed by CNBC Select's editorial staff.
- Earn $200 cash back after you spend $1,500 on purchases in the first 6 months of account opening. This bonus offer will be fulfilled as 20,000 ThankYou® Points, which can be redeemed for $200 cash back.
- Earn 2% on every purchase with unlimited 1% cash back when you buy, plus an additional 1% as you pay for those purchases. To earn cash back, pay at least the minimum due on time. Plus, earn 5% total cash back on hotel, car rentals and attractions booked with Citi Travel.
- Balance Transfer Only Offer: 0% intro APR on Balance Transfers for 18 months. After that, the variable APR will be 17.49% - 27.49%, based on your creditworthiness.
- Balance Transfers do not earn cash back. Intro APR does not apply to purchases.
- If you transfer a balance, interest will be charged on your purchases unless you pay your entire balance (including balance transfers) by the due date each month.
- There is an intro balance transfer fee of 3% of each transfer (minimum $5) completed within the first 4 months of account opening. After that, your fee will be 5% of each transfer (minimum $5).
Balance transfer fee
There is an intro balance transfer fee of 3% of each transfer (minimum $5) completed within the first 4 months of account opening. A balance transfer fee of 5% of each transfer ($5 minimum) applies if completed after 4 months of account opening.
Foreign transaction fee
3%
The Wells Fargo Active Cash® Card is great if you want simplicity thanks to its flat-rate 2% unlimited cash rewards on purchases and $0 annual fee.
- High flat-rate return on purchases
- Intro-APR for purchases and qualifying balance transfers for a year
- No annual fee
- Cell phone protection
- Has a foreign transaction fee
- Limited redemption options unless you pair it with a Wells Fargo card that allows point transfers
Highlights
Highlights shown here are provided by the issuer and have not been reviewed by CNBC Select's editorial staff.
- Apply Now to take advantage of this offer and learn more about product features, terms and conditions.
- Earn a $200 cash rewards bonus after spending $500 in purchases in the first 3 months.
- Earn unlimited 2% cash rewards on purchases.
- 0% intro APR for 12 months from account opening on purchases and qualifying balance transfers. 18.49%, 24.49%, or 28.49% variable APR thereafter; balance transfers made within 120 days qualify for the intro rate and fee of 3% then a BT fee of up to 5%, min: $5.
- $0 annual fee.
- No categories to track or remember and cash rewards don't expire as long as your account remains open.
- Find tickets to top sports and entertainment events, book travel, make dinner reservations and more with your complimentary 24/7 Visa Signature® Concierge.
- Up to $600 of cell phone protection against damage or theft. Subject to a $25 deductible.
Balance Transfer Fee
3% intro for 120 days from account opening, then up to 5%, min: $5
Foreign Transaction Fee
3%
Welcome bonus rewards
The top credit cards feature massive welcome bonuses worth $1,000+, and the vast majority of these offers have minimum spending requirements. So you won't earn the bonus rewards until you hit a spending threshold within a limited timeframe — typically three to six months from when you open the account.
Since you have to spend to earn the welcome bonus, you normally won't pay taxes on these rewards. The only exception is the rare instance where you receive a welcome bonus just for opening the card (with no spending requirement). In that case, you could receive a 1099 form from the card issuer. Even if you aren't issued a 1099, you are still required to report all taxable income, including taxable rewards.
If you're looking for a healthy welcome offer, you can't go wrong with the Chase Sapphire Preferred® Card (see rates and fees). It earns valuable flexible travel rewards and has a reasonable spending requirement.
The Chase Sapphire Preferred® Card packs a punch for a $95 annual fee card, offering annual travel credits, comprehensive travel protections and more.
- You can transfer rewards to all of Chase's travel partners including World of Hyatt, Southwest Rapid Rewards and many more
- Long list of travel and shopping protections
- $50 annual Chase Travel hotel credit
- Has an annual fee
- Requires a high credit score
Highlights
Highlights shown here are provided by the issuer and have not been reviewed by CNBC Select's editorial staff.
- Earn 75,000 bonus points after you spend $5,000 on purchases in the first 3 months from account opening.
- Enjoy benefits such as 5x on travel purchased through Chase TravelSM, 3x on dining, select streaming services and online groceries, 2x on all other travel purchases, 1x on all other purchases
- Earn up to $50 in statement credits each account anniversary year for hotel stays through Chase TravelSM
- 10% anniversary points boost - each account anniversary you'll earn bonus points equal to 10% of your total purchases made the previous year.
- Count on Trip Cancellation/Interruption Insurance, Auto Rental Collision Damage Waiver, Lost Luggage Insurance and more.
- Complimentary DashPass which unlocks $0 delivery fees & lower service fees for a min. of one year when you activate by 12/31/27. Plus, a $10 promo each month on non-restaurant orders.
- Member FDIC
Balance transfer fee
Either $5 or 5% of the amount of each transfer, whichever is greater
Other types of bonuses
Other bonuses you earn with your credit card follow the same tax rules as the rewards you earn from spending or a welcome bonus. If it requires you to spend anything to earn, you normally won't owe taxes, and if it doesn't have a spending requirement, you should report qualifying taxable rewards as income.
One common type of credit card bonus likely subject to taxes is the referral bonus. These are the rewards you earn when you refer friends and family to a card (usually through a special link) and they get approved.
These bonuses are generally taxable because you didn't spend any money to earn them, so you should expect to receive a 1099 from the card issuer. If you received the referral bonus as cash back, it's fairly straightforward how the issuer determines the taxable income, but it can be tricky when the bonus is in points or miles. CNBC Select staff have found that most card issuers value points or miles at one cent each for tax purposes. So a 20,000-point referral bonus generally counts as $200 in taxable income.
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At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of tax products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.
