Is Credit Card Cash Back Taxable?

There's good tax news on credit-card cashback promotions
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Many credit cards offer cash-back rewards to their account holders. The amount of your reward is calculated on the card's average balance, or your total purchases during the year. The consumer benefits by an indirect discount on goods purchased, while the credit card company sees more frequent, profitable use of its high-interest, revolving account. However, cardholders may wonder how the IRS views this money.

Cash-back Promotions

Cash-back programs vary among credit-card issuers. Some issuers will mail you a check, let you apply the reward value to your next statement, or send you a gift card in the reward amount to use at a retailer. Some credit cards offer reward points, which you earn when you make purchases -- and can then use to redeem a variety of items, including merchandise, gift cards or cash back. Some issuers offer a percentage back only on specific purchase categories such as hotels, rental cars or online shopping. Others offer a reward on the total amount of purchases over a limited period of time -- often valid for an introductory 3-month "teaser" period.

IRS Policy

Although the IRS is eager to designate money you receive from any source as taxable income, it has a different opinion on cash-back credit card offers. The IRS considers these promotional strategies as discounts on goods that you purchase; the money you spent on the goods was already taxed when you earned it and as such, a return of the money from the credit card is not taxable. The same is true for rewards "points," earned for making a purchase, as well as cash rebates offered on specific products -- although if you resell the item and declare the gain or loss, you must reduce the basis of the purchase price by the amount of the rebate.


The IRS does not include cash-back rewards as a subject in the tax code, thus taxpayers must rely on the authority of the IRS's formal decisions in specific cases. In 2002, the IRS issued a private letter decision that rebate rewards offered by a credit card issuer were not taxable. The private letter referred only to the claim of a single taxpayer, and concerned the donation of business reward miles to charity; however, these rulings are typically viewed as an indication of IRS thinking in regard to a more general tax issue, as noted in a June 2010 article.

Taxable Benefits

The IRS does specifically include other benefits provided by credit card issuers in taxable income. These include payments on your balance if you become disabled or unemployed, through a credit-card insurance program. If you paid a credit insurance premium, you must report the amount of benefit you received over and above the premium amount on Line 21 of Form 1040.

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