Are Credit Card Rewards Taxable?
This is an interesting question, and one that I’ve thought about quite a bit in the past…
According to the Wall Street Journal, the IRS hasn’t issued much in the way of public guidance on this matter. The IRS did, however, issue a private letter ruling in 2002 that said certain card rebates are not considered taxable income. While a private letter ruling applies only to the taxpayer that requested it, this at least gives you a sense for which way the IRS is leaning.
In addition, IRS Publication 17 says the following:
Cash rebates.
A cash rebate you receive from a dealer or manufacturer of an item you buy is not income, but you must reduce your basis by the amount of the rebate.
Of course, a manufacturer or dealer rebate isn’t quite the same as earning cash back on a credit card, but the underlying principle is highly similar.
I also dusted of my copy of Ernst & Young’s 2007 tax guide and they say:
The IRS realistically views rebates as another way of offering a price reduction to induce you to buy a product… The same rule applies to any cash rebates you might receive from your credit card company for using its card.
So there you have it… While I’m not a tax professional, I’m comfortable enough with these bits of information that I have no qualms about treating my credit card rewards as tax-free.






I truly enjoyed reading this imformation!
Comment by Mrs Liliane T Knowles — Jan 31st 2008 @ 8:09 amThank Jesus for this info! Have a great day. John 3:16
Comment by Al — Mar 30th 2008 @ 12:32 amThis makes sense since a cash back reward is not income, it’s a reduction in the price you paid for the merchandise. Taxing a cash back reward would be a double taxation on your earnings.
Comment by MITBeta @ Don't Feed The Alligators — Mar 30th 2008 @ 7:59 am