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If I cash out my points and miles, do I have to claim it on my taxes?

Sept. 17, 2022
3 min read
An unseen person has items on a desk for preparing taxes and checking receipts
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"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.

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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.

NATEE MEEPIAN/EYEEM/GETTY IMAGES

"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.

Featured image by KITZCORNER/SHUTTERSTOCK
Editorial disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

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  • $95 annual fee
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  • For a limited time, earn 80,000 bonus ThankYou® Points after you spend $4,000 in purchases within the first 3 months of account opening
  • Earn 3 Points per $1 spent at Restaurants and Supermarkets
  • Earn 3 Points per $1 spent at Gas Stations, Air Travel and Hotels
  • Earn 1 Point per $1 spent on all other purchases
  • Annual Hotel Savings Benefit
  • 80,000 Points are redeemable for $800 in gift cards when redeemed at thankyou.com
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Best starter travel card
TPG Editor‘s Rating
Card Rating is based on the opinion of TPG‘s editors and is not influenced by the card issuer.
4 / 5
Go to review

Rewards Rate

3XEarn 3 Points per $1 spent at Restaurants and Supermarkets
3XEarn 3 Points per $1 spent at Gas Stations, Air Travel and Hotels
1XEarn 1 Point per $1 spent on all other purchases
  • Intro Offer
    For a limited time, earn 80,000 bonus ThankYou® Points after you spend $4,000 in purchases within the first 3 months of account opening

    Earn 80,000 ThankYou® points
    60,000 points
  • Annual Fee

    $95
  • Recommended 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.

    670-850
    Excellent, Good

Why We Chose It

The Citi Premier’s 3 points per dollar spent across a wide range of popular categories is one of the more lucrative offerings in the world of points and miles. The Citi Premier comes with a $95 annual fee and is currently offering a solid sign up bonus of 80,000 points after you spend $4,000 on purchases within the first three months. It also has some valuable transfer partners to make the most of your rewards. Add in access to Citi Entertainment plus a $100 hotel credit for any single-stay hotel booking that exceeds $500 or more, excluding taxes and fees, booked through the Citi travel website, there are few reasons why the Citi Premier should not be in every traveler’s wallet.

Pros

  • Earns 3x points on restaurants, supermarkets, gas stations, air travel and hotels.
  • $100 annual hotel savings benefit (on single hotel stay bookings of $500 or more, excluding taxes and fees, booked through thankyou.com)
  • Points transfer to 16 airline programs, from JetBlue to Virgin Atlantic.
  • World Elite Mastercard benefits, extended warranty, damage and theft protection.

Cons

  • $95 annual fee
  • Lacks travel protections that other travel rewards cards come with
  • For a limited time, earn 80,000 bonus ThankYou® Points after you spend $4,000 in purchases within the first 3 months of account opening
  • Earn 3 Points per $1 spent at Restaurants and Supermarkets
  • Earn 3 Points per $1 spent at Gas Stations, Air Travel and Hotels
  • Earn 1 Point per $1 spent on all other purchases
  • Annual Hotel Savings Benefit
  • 80,000 Points are redeemable for $800 in gift cards when redeemed at thankyou.com
  • No expiration and no limit to the amount of points you can earn with this card
  • No Foreign Transaction Fees on purchases