Author Topic: Are credit card rewards taxable as income?  (Read 4297 times)

rosarugosa

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Are credit card rewards taxable as income?
« on: November 04, 2013, 04:06:17 AM »
I know that a lot of folks here actively work at maximizing rewards.  I'm wondering if they are taxable, especially the cash back or gift card options (since those are cash equivalents).  If so, does it make a difference if you claims your rewards in the form of merchandise, or flights, or hotel nights?

chasesfish

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Re: Are credit card rewards taxable as income?
« Reply #1 on: November 04, 2013, 04:44:33 AM »
No they aren't, they are considered a refund of the discount fees paid between merchants and banks when they swipe your card.

If they didn't tax people on the dollar coin trick, then it probably won't happen in the future.

kkbmustang

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Re: Are credit card rewards taxable as income?
« Reply #2 on: November 04, 2013, 05:49:44 PM »
When I was consulting I actually did research on this issue and found some sort of IRS guidance on it (either a Private Letter Ruling or some such). They are considered a negotiated price discount, as mentioned above.

Cyrano

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Re: Are credit card rewards taxable as income?
« Reply #3 on: November 04, 2013, 05:53:20 PM »
One exception is signup rewards that don't require you to spend anything. No expenditure = no discount = potentially taxable income.

But ever since the IRS made this distinction, credit card companies have gone from things like $100 in cashback points when you sign up, to $100 in cashback points after you spend $500, and the latter is not income.

curler

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Re: Are credit card rewards taxable as income?
« Reply #4 on: November 04, 2013, 06:36:14 PM »
No they aren't, they are considered a refund of the discount fees paid between merchants and banks when they swipe your card.

If they didn't tax people on the dollar coin trick, then it probably won't happen in the future.

What is the dollar coin trick?

iamlindoro

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Re: Are credit card rewards taxable as income?
« Reply #5 on: November 04, 2013, 06:42:13 PM »
No they aren't, they are considered a refund of the discount fees paid between merchants and banks when they swipe your card.

If they didn't tax people on the dollar coin trick, then it probably won't happen in the future.

What is the dollar coin trick?

In an attempt to make dollar coins commonly used currency, the Treasury allowed people to order any quantity of dollar coins, on credit card, and shipped them for free.  People purchased coins on reward cards, raked in the miles, and deposited the coins in the bank when they arrived.

chasesfish

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Re: Are credit card rewards taxable as income?
« Reply #6 on: November 04, 2013, 07:03:41 PM »
Two trips to Hawaii and some decent deposits into my Fidelity account before this went away..

Amex is starting to realize I'm really not a big spender

brewer12345

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Re: Are credit card rewards taxable as income?
« Reply #7 on: November 04, 2013, 07:21:22 PM »
No they aren't, they are considered a refund of the discount fees paid between merchants and banks when they swipe your card.

If they didn't tax people on the dollar coin trick, then it probably won't happen in the future.

What is the dollar coin trick?

In an attempt to make dollar coins commonly used currency, the Treasury allowed people to order any quantity of dollar coins, on credit card, and shipped them for free.  People purchased coins on reward cards, raked in the miles, and deposited the coins in the bank when they arrived.

Hah!  What a great racket that was.  There were people who ordered $10k of coins a month just for the churn.  I heard plenty of stories about people wheeling the boxes of coins into local bank branches on carts because they were too heavy to carry.  It finally got written up in the WSJ and the mint pulled the deal/scam amid heavy public criticism.

chasesfish

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Re: Are credit card rewards taxable as income?
« Reply #8 on: November 05, 2013, 04:23:38 AM »
You should have seen how irritated most of the tellers were.  They had to bust up the rolls and send them back in bags of 2000.

I had to find that teller who enjoyed smashing rolls of coin as stress relief.

rosarugosa

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Re: Are credit card rewards taxable as income?
« Reply #9 on: November 05, 2013, 06:33:02 AM »
Thanks for the input everyone.  I'll be at about $1000 this year for cash and gift cards, not including free hotel nights, so it definitely seemed like something I needed to consider.

EnergyConsultant

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Re: Are credit card rewards taxable as income?
« Reply #10 on: November 05, 2013, 06:37:13 AM »
If you are self-employed, and you use credit cards for deductible expenses, you would technically have to reduce the deductible expense amount by the credit card reward amount, or just claim the reward as income (easier). I keep a separate business credit card and I end up claiming the reward as income (it's not much).