Are Credit Card CashBack Rebates Taxable?

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Hmm… the media seems to be addressing all my questions today. This Wall Street Journal column addresses the taxation of credit card rebates:

The IRS hasn’t issued any specific public guidance on whether cash-back card rebates are subject to income tax, says an agency spokesman. But the IRS did issue a private-letter ruling in 2002 that said certain card rebates aren’t included in a taxpayer’s gross income. Although a private-letter ruling applies only to the taxpayer that applied for it, such rulings are considered to be a gauge of the agency’s thinking on a particular issue. Tax advisers say rebates are generally considered to be a reduction in purchase price, and not likely to be taxed. Rebates on purchases made for business or investment may have more complex treatment, so consult a tax adviser.

In short, the IRS hasn’t said anything specific either way, but has ruled in specific cases that they are not taxable. Although certainly not concrete, this is still reassuring as I personally have never reported any of my cashback as income.

I would estimate I pull in well over $1,000 a year in free money from credit cards, with my 2 to 5% back on all my purchases as well as signing up for $100 to $250 in upfront incentives. The great thing is that anyone with decent credit can get in on these offers. Article via Boston Gal’s Open Wallet.

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  1. I wouldn’t be surprised if the $100/$250 bonuses start being considered taxable (1099-MISC?)especially since the credit card companies are banks anyway and have the capacity to keep track of this sort of thing. As for rebates? Doubtful, as the advisors say, it’s just you getting your own money back.

  2. Disclaimer: I am not a tax professional, but I think that…

    There is no way cashbacks can be taxable. You are not receiving cashback as a commission or incentive, but as a discount, a price reduction. You are getting your own money back. The IRS cannot tax you on paying less.

    Now, if you received cashback for other people’s transactions, that should be taxable.

  3. You should also clarify that between business credit cards and personal credit cards that offer cash back.

    While your comment on the article may hold true for personal cards, your reads should check the last comment in the WSJ article, “Rebates on purchases made for business or investment may have more complex treatment, so consult a tax adviser.”

  4. The US tax system is stupid. The IRS can basically tax on everything if they want to. But wait, if the rules become ridiclous, nobody will follow by filing them!

  5. Jane Dough says:

    I am just grateful I will not have to worry about tracking the rebates as taxable income…

  6. I’m not a tax professional, but my guess is that cashback cards will be treated like airline miles. Airline miles are considered a reduction on the current flight’s price and a desposit toward the free flight’s price. Cashback is slightly more complicated, since you can use the money for whatever you want, not just a flight, but I’m guessing it’ll be the same thing.

    The other issues to consider: a) the IRS hasn’t ruled on it yet, and these cards have been around for a while, so they probably won’t suddenly change policy; b) credit card companies will complain, which is probably the reason the IRS hasn’t considered these taxable in the first place.

  7. Cash back is not taxable, it is simly considered a reduction in the tax basis of items purchased. Sign up bonuses, however, are most likely taxable income.

  8. Cashback is not taxable as you have not earned it ie: you haven’t worked for the money . The cashback provider of course can treat the cashback as an allowable expense .

  9. Mary Mallon says:

    I received a rebate for consolidating my student loans. I just received a 1099 for this rebate. Is this taxable income?

  10. If you got a 1099, it’s most likely taxable according to however it is classified on the 1099. I have never heard of a credit card issuer send out 1099s for cashback rebates, which is why it’s more of a grey area.

  11. I’ve always considered cash backs as rebates in which you normally do not report a rebate as an income (because it is a price reduction). Though if you do use your rebate card (and pay it off every month), you can easily rack up thousands in rewards. Such a great way to save extra cash without even thinking about it. πŸ™‚

  12. Very interesting article, but I’d have to agree with the IRS on this on.

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