The rule that decides it: did you have to spend money?
The IRS looks at how you earned credit card rewards, not how you redeem them, to determine whether they’re taxable. For example:
| Bonus type | Spend required? | Taxable? |
|---|---|---|
| Welcome bonus | Yes | No |
| Referral bonus | No | Yes |
| No-spend account bonus | No | Yes |
| Bank account bonus | No | Yes |
Reporting taxable rewards on your return
You might not receive a 1099 form for taxable credit card rewards, since many issuers don’t send one for smaller amounts, but you’re still expected to report the income. Taxable rewards go on Schedule 1 as “Other income,” which flows to Form 1040.
Business credit card rewards: A different calculation
A business doesn’t record rewards as separate income. Instead, rewards earned on a business purchase reduce the deductible cost of that purchase. For example, if you spend $2,000 and earn $40 back, the deduction will be $1,960.
