Tax Day is coming: Complete guide to paying taxes on credit card rewards
Editor’s note: This post has been updated with the latest information.
Tax Day is creeping closer.
The federal income tax filing due date for individuals is April 18.
TPG has received many questions about whether you should pay any owed taxes with a rewards-earning credit card. Many are also wondering what the tax implications are on the rewards that they have received as sign-up bonuses for opening new accounts or even for referring friends to bonus offers on top travel credit cards.
For tax reasons, the Internal Revenue Service classifies credit card rewards as either bonuses or discounts. Fortunately, discounts, rebates and most bonuses are not considered taxable for IRS purposes.
However, there are some cases where you will receive a 1099-MISC form for points or miles you earned for select activities.
There is an added twist this year with Capital One sending 1099s for things like statement credits.
Here's what you need to know — though bear in mind that we are not tax professionals here at TPG, so if you have further questions, you should contact your certified public accountant.
Are any credit card rewards taxable?
Generally, most credit card rewards are not taxable.
Standard welcome bonuses (like 100,000 Chase Ultimate Rewards points after spending $15,000 on purchases in the first three months of account opening with the Ink Business Preferred Credit Card) are generally not classified as taxable income. The points you earn for your everyday spending on cards are not classified as such either.
The main exception to this rule is referral bonuses (such as getting Delta miles for referring a friend to the Delta SkyMiles® Reserve American Express Card or Membership Rewards points for referring a friend to the American Express® Gold Card). This is considered income because you didn’t have to spend to get the points. (Your friend, on the other hand, wouldn’t need to pay taxes on the bonus they earn for completing that spending.)
Read more: How to refer friends and earn points, miles or cash credits
Tax experts agree, noting that the only time credit card rewards should be taxable is when you don't have to spend anything to earn those miles. In the above examples, you're effectively doing work for the company, and the company is compensating you for that work — hence a 1099.
“Cash (in all forms) is always taxable. Miles are not," Maggie Grayson pointed out in the TPG Lounge.
Sometimes, you will receive a 1099-MISC or a 1099-INT if a card has given you taxable rewards; not all issuers will send these forms, so you should keep your own notes. We’ve also seen instances where banks mistakenly send these forms even when rewards shouldn’t have been taxed. So, if you get one in the mail, you don’t immediately need to panic.
What is a 1099?
A 1099 is a so-called information return document for the IRS. It’s the same type of document as a W-2. It shows the income you’ve received from a third party. One copy goes to you and one goes to the IRS. A 1099-MISC reports “miscellaneous income” paid by one taxpayer to another.
However, you still need to report all income — even if you didn’t receive a 1099.
Where do I report the 1099 income?
You should include the income under the heading “Other income” on line 8z of your 1040 as reported under the “Other income” from Schedule 1, line 22.
What issuers are sending 1099s?
If you received a referral bonus, you should have received a 1099. If you didn’t, you can request one from your bank or estimate the income. Often your bank won’t send a form unless it amounted to $600 or more in income. Even if the bank didn’t send one, you’ll still need to report the income to the IRS.
"Any bonus that requires spend doesn’t get hit with a 1099," Aaron Barnes said in the TPG Lounge. "Referrals do as you’re considered a ‘marketer’ for the company."
American Express is reportedly sending out 1099s this year, but only for referral bonuses.
Several of our TPG Facebook Lounge members received a 1099 from American Express.
"I got hit with 1099s from Amex for referrals on both gold [and] platinum cards," Andy Gammage said. "I did not receive a 1099 last year on those cards even though I did do some referrals."
Eric Calasanzio said last year he “got $750 worth of 1099 from Amex for referral bonuses.”
Look for American Express National Bank letters in the mail. In 2019, Amex sent 1099-MISC forms valuing points between 0.67 cents per point for Hilton Honors points to 1 cent each for American Express Membership points.
Ross Binkley told TPG last year that he received several forms from American Express. “They issue a separate 1099 for each card you’ve referred from,” he said. “They still issue the 1099s even if the total of all of them is under $600, though. I think I may have been over $600 in 2019, but I’ve received them in years where I wasn’t, too.”
Chase is reportedly sending out 1099s again as well. Several people in our TPG Lounge reported getting 1099s.
Silvia SzucsI said she "received a 1099 from Chase for three referrals ($600)."
Back in 2018, it sent 1099s for referral bonuses — some of those by mistake. Chase typically only sent out 1099s in the past few years for those who participated in Chase's Refer-A-Friend program. Chase values its points at 1 cent each for tax purposes.
However, there are other activities that have resulted in the issuance of 1099s, especially in regard to banking products.
Abhishek Midha told TPG he got a “1099-Misc for [a] 60k Chase UR Sapphire banking bonus promo.”
“I got a 1099 from Chase for a $200 checking account bonus,” Nick Graham said.
More reading: What you need to know about credit card rewards and taxable income
Citibank also routinely sends out 1099s.
There is a great explanation of what Citibank considers reportable income from a widely shared 2012 Citibank blog post:
You may have read in the news about Citi sending a small number of U.S. Consumer Bank clients 1099-MISC tax forms as a result of signing up for a airline miles giveaway promotion for opening a checking account. We want to make sure you know that rewards and airline miles that are provided in connection with a purchase on a credit card are routinely not subject to individual income tax reporting. However, if you receive a gift for opening a bank account — whether cash or airline miles — the value of that gift is generally treated as income and subject to reporting. This is separate and distinct from miles or points earned by our credit card customers for their purchases.
This year, Capital One threw us a curveball. The bank is reportedly sending out 1099s for unusual things like the value of statement credits.
Capital One may now be treating statement credits and bonus points as gifts, which can be considered taxable.
The banks have always treated statement credits and bonus points as rebates on spending, which the IRS does not view as taxable income.
Capital One told TPG:
Required reportable payments include certain credits or gifts given to customers including the TSA Pre/Global Entry statement credit and courtesy credits via customer servicing; reportable payments must equal or exceed a total of $600 within a year for a customer to be eligible to receive the 1099-MISC form.
If this turns out to be standard going forward, you should consider tax implications when considering new cards.
Related: Capital One expands benefits it considers taxable
Barclays, Bank of America, Wells Fargo and other banks
Same deal here: Anytime you got a referral bonus, you should have received a 1099. If you didn’t, you can request one from your bank or estimate your tax return income. Several folks responded to our question about this in the TPG Lounge. Readers have reported getting tax forms from Bask Bank, Citizens Bank, Fifth Third Bank and SoFi, among others.
“I got them for the first time this year (2020) from Bask Bank and BankDirect for the AA miles I received," Kevin Chin told us in the TPG Lounge in 2020.
Indeed, TPG's Nick Ewen said his family got one again this year from Bask Bank too.
Many of our readers have a Bask Bank Mileage Savings Account to earn American Airlines AAdvantage miles. However, those bonus Loyalty Points (or miles) you earn are considered interest income. So, you'll receive a 1099 form for those.
Are bank account sign-up bonuses taxable?
The short answer here is yes. Because you aren’t doing any spending to get the bonus, it’s considered income for IRS purposes. Also, note that points issued as sign-up bonuses for opening checking and/or savings accounts could be considered taxable income.
Be aware though, banks don’t always send out the forms ... even when you might owe.
George Thurlow said he got “None from Citi RE: opening bonus of 20k miles for the AAdvantage Savings account (generally a bonus for opening a bank account gets a 1099-INT).”
Is cash back taxable?
No, at least in most cases. A 2010 memorandum from the IRS says cash back earned via credit card spending is not considered taxable income. However, if you received it as part of opening a bank account where you didn’t have to complete minimum spending, you would need to report it as income.
One final note and reminder: Even if you don’t receive a 1099, you should still report any taxable bonuses as income. The IRS has been known to come after individuals who don’t. If you're in doubt, you should always consult a certified public accountant.
Additional reporting by Chris Dong.