Are Credit Card Perks Taxable?



Credit card companies are notorious for luring us in: low introductory interest rates, refer-a-friend bonuses, and cash back rewards and other perks. After all, card issuers are in the business of earning money each time we swipe our card through the payment terminal at check-out. What better way to get us to spend than to offer us incentives?

If you love to use your credit card with the cash back bonus program, you might want to read on. Some of those programs are taxable. It’s bad enough the credit card issuer gets your money with your monthly payment, but now Uncle Sam may want his share, too.

Taxable Rewards

Let’s suppose you get approved for a credit card and decide to open the bonus bank account attached to the card. As a reward, the bank issuing the card drops a cash bonus into the account. Sounds great, right?

At the end of the year, the credit card company will issue a 1099-INT form. You will need to report the amount shown on the 1099-INT as income on your tax return.

Non-Taxable Rewards

Some credit card bonus programs will issue a prize instead of cash rewards. Bonus points, airline tickets, air miles and merchandise vouchers are popular prizes.

You’re in the clear as long as the value of the prize is $600.00 or less. If those tickets you received are worth over $600.00, the credit card issuer or bank will send you a 1099-MISC form at the end of the year, which shows the taxable value you’ll need to report on your tax returns.

Certain cash back bonuses are also tax exempt: you’re not obligated to report the bonus as income if there is a spending requirement, such as spending the specified amount using the credit card.

As with any financial transaction, it pays to read the fine print when applying for a credit card with a reward program. If you get a bonus deposit for opening a bank account at the same time your credit card is approved, you will need to report that income at the end of the year.

Look over the fine print closely and decide which credit card rewards program is best for you. You could end up owing more money to the IRS if you’re not careful.