Are Credit Card Rewards Taxable?

Written by admin - 3 Comments

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.

Published on January 25th, 2008 - 3 Comments
Filed under: Credit Card Tips
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Comments (scroll down to add your own):

I truly enjoyed reading this imformation!
Comment by Mrs Liliane T Knowles — Jan 31st 2008 @ 8:09 am
Thank Jesus for this info! Have a great day. John 3:16
Comment by Al — Mar 30th 2008 @ 12:32 am
This 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