Author Topic: Tax Consequence on Credit Card Churning  (Read 1627 times)

Diogenes

  • 5 O'Clock Shadow
  • *
  • Posts: 17
  • Age: 60
  • Location: Oklahoma
  • Of the things I've lost, I miss my mind the most.
Tax Consequence on Credit Card Churning
« on: April 24, 2019, 08:10:21 PM »
My wife and I are retired.  We are working the credit card point system to bolster our travel.   My mother lives in an assisted living center due to physical issues, she is starting to exhibit memory loss but is pretty much on an even keel.  I told her how we are paying for a vacation using our CC points.   This brought up an interesting discussion.  She is receiving benefits from a Long Term Care policy she has.   If I were to pay her LTC provider the monthly charges via our credit card and have myself listed on the "assignment of benefits"  it would create a 4K churn on our credit card.  There would be no interest as we stay ahead of our debts and are debt free.   

Would this 4K churn count as income on our taxes? 

Padonak

  • Bristles
  • ***
  • Posts: 485
Re: Tax Consequence on Credit Card Churning
« Reply #1 on: April 24, 2019, 08:38:29 PM »
As far as i know, credit card rewards are not taxable (I'm not a tax professional).

We pay fees for using credit cards (sometimes as high as 3% of the price or more). If I had to pay tax for credit card rewards, it would be fair for me to get a tax deduction for these fees.

Diogenes

  • 5 O'Clock Shadow
  • *
  • Posts: 17
  • Age: 60
  • Location: Oklahoma
  • Of the things I've lost, I miss my mind the most.
Re: Tax Consequence on Credit Card Churning
« Reply #2 on: April 25, 2019, 12:06:53 PM »
Yeah, the points aren't taxed, but would the payment from the LTC insurance company to me to reimburse me for paying the facility be treated as income?

walkwalkwalk

  • Stubble
  • **
  • Posts: 235
Re: Tax Consequence on Credit Card Churning
« Reply #3 on: April 25, 2019, 12:34:51 PM »
Yeah, the points aren't taxed, but would the payment from the LTC insurance company to me to reimburse me for paying the facility be treated as income?
I think that would require you becoming her payee. I'm not sure the LTC insurance co would allow it. You could call them I guess. My guess right now is that the LTC directly pays the expenses, it never lands in her account.

bacchi

  • Magnum Stache
  • ******
  • Posts: 3942
Re: Tax Consequence on Credit Card Churning
« Reply #4 on: April 26, 2019, 11:34:11 AM »
Yeah, the points aren't taxed, but would the payment from the LTC insurance company to me to reimburse me for paying the facility be treated as income?

It sounds like the roommate situation. A roomie pays you and you pay the landlord. That's not income to you.

But ask a professional. That'd be an expensive mistake.

Milkshake

  • Stubble
  • **
  • Posts: 216
Re: Tax Consequence on Credit Card Churning
« Reply #5 on: May 03, 2019, 11:26:21 AM »
This sounds like the same concept as using a personal card for business expenses, which are then reimbursed by your company. People do this constantly (myself included in the past) and I've never heard of anyone having a tax liability from it. As walkwalkwalk said, I would definitely make sure the LTC company is ok with you becoming her payee first. If it's against their ToCs, they might revoke the entire policy.

OneCoolCat

  • Bristles
  • ***
  • Posts: 438
  • Age: 32
  • Location: SoFla
Re: Tax Consequence on Credit Card Churning
« Reply #6 on: May 11, 2019, 07:31:57 PM »
It is income so it is taxable.  That said, I don't think any of the credit card companies actually send 1099's out so its on the honor system.


Milkshake

  • Stubble
  • **
  • Posts: 216
Re: Tax Consequence on Credit Card Churning
« Reply #7 on: May 13, 2019, 11:14:59 AM »
It is income so it is taxable.  That said, I don't think any of the credit card companies actually send 1099's out so its on the honor system.

This is entirely false. Please research topics and provide sources before posting as fact.

Credit card rewards earned from spending are considered a post purchase discount by the IRS, and are not taxable.

Insurance reimbursements are also not taxable, as they are reimbursements for a loss that you sustained (ie. property, medical, or in this case Long Term Care payments). Note if you are reimbursed, you cannot deduct that as a "loss" on your taxes if you itemize.

In this case, you would have a loss (Long Term Care payments) that is covered by an insurer (Long Term Care plan), and the credit card company is giving you a post purchase discount on your long term care by giving you points. All should be not taxable.

I am not a tax attorney, so full disclaimer. But the research suggests it is perfectly legal and not taxable.

https://www.investopedia.com/ask/answers/110614/are-credit-card-rewards-considered-taxable-income-irs.asp
https://taxmap.irs.gov/taxmap/pub17/p17-113.htm#TXMP26f95dfd

Diogenes

  • 5 O'Clock Shadow
  • *
  • Posts: 17
  • Age: 60
  • Location: Oklahoma
  • Of the things I've lost, I miss my mind the most.
Re: Tax Consequence on Credit Card Churning
« Reply #8 on: May 16, 2019, 08:10:27 AM »
Thanks for the replies.

The points awarded to a CC are not taxed, to my knowledge.

The long term care insurance company is paying a claim based on their policy with my mother.  I am her POA, Executor and Guardian.

I can have an Assignment of Benefits filled out to anyone.   I have tried three times now to have the LTC company pay the benefits directly to the Long Term Care Facility and they say they have it in their system to do it this way but still they transfer the money to my mother's Living Trust account, which then necessitates the bank having to write and deliver the a check to the Long Term Care provider.

What I would like to do, since the insurance company still hasn't got it right, is have the funds sent to me.   I would pay the LTC provider via a credit card, then use the funds sent to me from the insurance provider to pay off the debit created by the transaction with the provider.   My mother is elderly but still pretty sound mentally and is fine with this proposal as it means she doesn't have to keep track of anything and I get some economic reward for taking care of her finances.

So does the money from the insurance company to me for reimbursement of expenses count as income?    I don't believe it does but would welcome second opinions.

Regards to all.

 

Milkshake

  • Stubble
  • **
  • Posts: 216
Re: Tax Consequence on Credit Card Churning
« Reply #9 on: May 17, 2019, 07:03:35 AM »
If you are paying the bill for Long Term Care, and the insurance covers Long Term Care, and you are able to be added as a payee on the policy, then the payment from the insurance company is a reimbursement for a loss you sustained and is not taxable.

If you total your car, and your insurance pays you cash so you can buy a new one, it's not income. It's reimbursement for a covered loss. The "covered loss" in this case is the Long Term Care.

Your contact at the insurance company should also be able to tell you that it isn't taxable.

bacchi

  • Magnum Stache
  • ******
  • Posts: 3942
Re: Tax Consequence on Credit Card Churning
« Reply #10 on: May 17, 2019, 08:33:14 AM »
The only difficulty I see is the 1099-LTC. Would it still get issued to the named recipient (mom) or the OP, in which case tax time becomes more fun.