Are My Credit Card Rewards Taxable?

Cash back and points are usually not taxable, but using rewards for business purchases can affect your deductions.

With the IRS extending the filing deadline for tax returns, you have an extra three months to get all your tax documents together.

As a business credit card holder, you may be wondering if the cash back or points you earned in 2019 are taxable.

According to experts, there are definitely differences to keep in mind when you’re using a business credit card compared to your personal card.

“Credit card rewards for individuals are usually not taxable,” says Susan Allen, senior manager for tax practice and ethics at the American Institute of Certified Public Accountants.

“The logic is that the reward is almost like using a coupon or getting a discount on the purchase,” Allen says, so by getting cash back, “it’s really like reducing the purchase price.”

Are business credit card rewards taxable?

But it’s a different story if you have a business credit card and you use your rewards, such as cash back or a gift card, to help offset your business expenses.

“Deductible business expenses must be reduced by the rebate,” says Tim Yoder, tax and accounting analyst at FitSmallBusiness.com.

Meredith Tucker, a principal at the CPA and advisory firm Kaufman Rossin, cites the example of a business owner who charges $1,000 on their credit card for business travel, and uses $200 they earned in cash back to reduce their out-of-pocket cost to $800. In that case, they can only write $800 off their taxes.

And if you use only your rewards to cover the price of a purchase, you won’t be able to deduct the cost of the item from your business expenses, Tucker says.

As a business owner, you may prefer to use rewards to cover the cost of an item. That way you “don’t have to pay for something, rather than just get a deduction for it,” she says.

Along with tracking your business expenses, business owners need to keep track of how they are using business credit card rewards to offset their business expenses when tax time rolls around.

You also need to pay attention if you open up a new credit card and receive a cash bonus for signing up (rather than meeting a minimum spend), or get cash for referring a friend for a credit card.

That extra $100 or $200 you scored could be considered as taxable income.

“Some credit card issuers may report the bonus as income on (IRS) Form-1099,” which reports miscellaneous income, Allen says. “You would need to report that income on your tax return.”

Which business rewards credit card should I get?

When it comes time to look for a new business credit card “be sure you shop for a competitive rewards program,” Tucker says. Depending on your business and preference, you might opt for a business card that rewards travel, or one that offers you cash back on your purchases.

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