Some Credit Card Rewards May Be Taxable
We’re getting close to the end of the year, and soon you will have to gather your information to file your income taxes for 2013.
It may surprise you but some credit card rewards may be taxable, depending on how you earned them.
Many issuers lure potential customers with attractive sign-up bonuses in the form of significant cash back or mileage. For example, the Blue Cash Everyday Card from American Express gives you a $100 after you make $1,000 worth of purchases in the first three months of being a cardholder. The Citi Hilton HHonors Visa Signature Card gives you 40,000 points if you spend $1,000 in the first four months of having your account.
If you have to spend money in order to earn those bonuses, then the IRS sees the bonuses as a discount on your purchases, not as income. Hence, they are not taxable.
However, if you got the rewards for simply signing up for a card without any required purchases, the bonus may be considered taxable income.
This same theory applies for any cash back you might earn just by opening a checking or savings account at your bank.
If you get a 1099-MISC form in the mail at the beginning of 2014, you have to report that information on your taxes. It may not make much of a dent on your overall refund or money owed, but it is something you have to report by law.