If I cash out my points and miles, do I have to claim it on my taxes?
"Can I cash out my points?" is not an uncommon question. We recently looked at what the options are for cashing out points and whether it's worth doing so in terms of the value you'll get.
Any discussion on cashing out points leads to a follow-up question: Are there tax implications in doing so? We consulted with a tax specialist to discuss what — if any — tax implications there would be for people who decide to cash out their points.
For more TPG news delivered each morning to your inbox, sign up for our daily newsletter.
Tax implications for cashing out points and miles
Let's say you spend money on your credit card in bonus categories where you earn extra points or that you earn a welcome bonus on a credit card. We already know that banks sometimes sound out 1099s for referral bonuses, so what about credit card rewards? Are these taxable?
"There aren't any tax implications for cashing out your frequent flyer miles rewards under normal circumstances," according to Chad Mangum, an enrolled tax agent and owner of Tax Preparation Services in Salt Lake City, Utah. He said he had looked into this topic during research for his Master of Taxation degree and on behalf of clients during previous work with multiple tax attorneys.
"The IRS has a longstanding view that rewards are considered a 'discount' for goods/services that you purchase," he said. Miles and points earned as rewards from spending money on your credit cards are not considered cash or cash equivalents, except in extreme situations where cash-equivalent items are involved.
"One tax court case shows a situation where taxpayers went to extremes to accumulate rewards which resulted in over $300,000 of credits," Mangum added. "The IRS only prevailed in this case because the taxpayers bought gift cards to purchase money orders to purchase more gift cards, essentially ‘gaming’ the credit card rewards system at the time.
"This was a very unique situation where the court’s conclusion stated it excluded the IRS’s credit card rewards standing in its ruling (see: Konstantin Anikeev, TC Memo 2021-23)."
However, Mangum says that simply cashing out your points is not the same. He also points out that the discussion of the tax implications and the discussion of whether or not it's a "good idea" to cash out your points and miles are two separate discussions.
Related: Why points and miles are a bad long-term investment
Of course, there are times when earning points or miles will have tax implications — most notably for those who open a Bask Mileage Savings Account to earn American AAdvantage miles. The rewards you'd earn are considered interest income, and you'll be issued a 1099 form with the taxable value of 0.42 cents per mile.
Bottom line
The good news is that the IRS does not have a history of seeing credit card rewards as income. From our understanding — and from consulting with an IRS-credentialed tax specialist — most people who cash out their credit card rewards shouldn't need to claim this on their taxes.
However, if you have questions about tax filing requirements for your particular situation related to points and miles, cashing out your points or anything else, you should definitely talk to your tax preparer or a tax attorney for guidance.
Top offers from our partners
How we chose these cards
TPG featured card
Rewards
4X | Earn 4X Membership Rewards® Points at Restaurants, plus takeout and delivery in the U.S. |
4X | Earn 4X Membership Rewards® points at U.S. supermarkets (on up to $25,000 per calendar year in purchases, then 1X). |
3X | Earn 3X Membership Rewards® points on flights booked directly with airlines or on amextravel.com. |
Intro offer
Annual Fee
Recommended Credit
Why We Chose It
There's a lot to love about the Amex Gold card. It's been a fan favorite during the pandemic because of its fantastic rewards rate on restaurants (that includes takeout and delivery in the U.S.!) and U.S. supermarkets. If you're hitting the skies soon, you'll also earn bonus points on travel. Paired with up to $120 in Uber Cash (for U.S. Uber rides or Uber Eats orders) and up to $120 in annual dining statement credits at eligible partners, there's no reason that the foodie shouldn't add this card to their wallet. Enrollment required.Pros
- 4x on dining at restaurants and U.S. supermarkets (on the first $25,000 in purchases per calendar year; then 1x)
- 3x on flights booked directly with the airline or with Amex Travel
- Welcome bonus of 60,000 points after spending $4,000 in the first six months
Cons
- Weak on travel outside of flights and everyday spending bonus categories
- Not as useful for those living outside the U.S.
- Some may have trouble using Uber/food credits
- Few travel perks and protections
- Earn 60,000 Membership Rewards® points after you spend $4,000 on eligible purchases with your new Card within the first 6 months of Card Membership.
- Earn 4X Membership Rewards® Points at Restaurants, plus takeout and delivery in the U.S., and earn 4X Membership Rewards® points at U.S. supermarkets (on up to $25,000 per calendar year in purchases, then 1X).
- Earn 3X Membership Rewards® points on flights booked directly with airlines or on amextravel.com.
- $120 Uber Cash on Gold: Add your Gold Card to your Uber account and each month automatically get $10 in Uber Cash for Uber Eats orders or Uber rides in the U.S., totaling up to $120 per year.
- $120 Dining Credit: Satisfy your cravings and earn up to $10 in statement credits monthly when you pay with the American Express® Gold Card at Grubhub, The Cheesecake Factory, Goldbelly, Wine.com, Milk Bar and select Shake Shack locations. Enrollment required.
- Choose the color that suits your style. Gold or Rose Gold.
- No Foreign Transaction Fees.
- Annual Fee is $250.
- Terms Apply.
- See Rates & Fees
Rewards Rate
4X | Earn 4X Membership Rewards® Points at Restaurants, plus takeout and delivery in the U.S. |
4X | Earn 4X Membership Rewards® points at U.S. supermarkets (on up to $25,000 per calendar year in purchases, then 1X). |
3X | Earn 3X Membership Rewards® points on flights booked directly with airlines or on amextravel.com. |
Intro Offer
Earn 60,000 Membership Rewards® points after you spend $4,000 on eligible purchases with your new Card within the first 6 months of Card Membership.60,000 bonus pointsAnnual Fee
$250Recommended Credit
Credit ranges are a variation of FICO© Score 8, one of many types of credit scores lenders may use when considering your credit card application.670-850Excellent/Good
Why We Chose It
There's a lot to love about the Amex Gold card. It's been a fan favorite during the pandemic because of its fantastic rewards rate on restaurants (that includes takeout and delivery in the U.S.!) and U.S. supermarkets. If you're hitting the skies soon, you'll also earn bonus points on travel. Paired with up to $120 in Uber Cash (for U.S. Uber rides or Uber Eats orders) and up to $120 in annual dining statement credits at eligible partners, there's no reason that the foodie shouldn't add this card to their wallet. Enrollment required.Pros
- 4x on dining at restaurants and U.S. supermarkets (on the first $25,000 in purchases per calendar year; then 1x)
- 3x on flights booked directly with the airline or with Amex Travel
- Welcome bonus of 60,000 points after spending $4,000 in the first six months
Cons
- Weak on travel outside of flights and everyday spending bonus categories
- Not as useful for those living outside the U.S.
- Some may have trouble using Uber/food credits
- Few travel perks and protections
- Earn 60,000 Membership Rewards® points after you spend $4,000 on eligible purchases with your new Card within the first 6 months of Card Membership.
- Earn 4X Membership Rewards® Points at Restaurants, plus takeout and delivery in the U.S., and earn 4X Membership Rewards® points at U.S. supermarkets (on up to $25,000 per calendar year in purchases, then 1X).
- Earn 3X Membership Rewards® points on flights booked directly with airlines or on amextravel.com.
- $120 Uber Cash on Gold: Add your Gold Card to your Uber account and each month automatically get $10 in Uber Cash for Uber Eats orders or Uber rides in the U.S., totaling up to $120 per year.
- $120 Dining Credit: Satisfy your cravings and earn up to $10 in statement credits monthly when you pay with the American Express® Gold Card at Grubhub, The Cheesecake Factory, Goldbelly, Wine.com, Milk Bar and select Shake Shack locations. Enrollment required.
- Choose the color that suits your style. Gold or Rose Gold.
- No Foreign Transaction Fees.
- Annual Fee is $250.
- Terms Apply.
- See Rates & Fees