In general, the IRS treats credit card rewards as a rebate or a discount, rather than income. Rebates and discounts are not usually taxable. Income is almost always taxable. However, there are some grey areas where credit card rewards look more like income than a rebate or discount. Let’s dive into the details and explore more.
In general, the IRS treats credit card rewards as a rebate or a discount, rather than income. Rebates and discounts are not usually taxable. Income is almost always taxable. However, there are some grey areas where credit card rewards look more like income than a rebate or discount. Let’s dive into the details and explore more.
The IRS treats rebates and income differently. It broadly sees rebates as nontaxable and income as taxable. As it relates to credit card rewards, the same approach applies, but with some important exclusions, which we’ll dig into later.
Think of a rebate as a partial refund that you get after you’ve made a purchase. Let’s say you spend $50 on a credit card with 2% rewards. You’ll get $1 back as a rebate. Your $50 purchase really only cost you $49, but the discount wasn’t immediate. For the purposes of tax, view it as a rebate.
Taxable income can be money, property, goods or services. This may include salary, tips, benefits in kind, rental income and dividends from investment. You will normally add together your gross income and deduct allowable expenses to calculate your taxable income.
All credit card rewards are free: Most rewards are free, but some may attract tax. If you earn a reward without having to spend, for example a welcome bonus, it may well be taxable because the IRS doesn’t technically see it as a reward.
No 1099-MISC, no tax: Form 1099-MISC is commonly used by businesses to report payments to contractors. It’s sometimes used by businesses to report rewards paid to customers too. We’ll cover Form 1099-MISC in more detail later. For now, it’s important to clarify that not receiving this form is not a guarantee that the rewards are tax free.
Airmiles are always tax-free: In most cases, airmiles are tax free. But there are exceptions to this rule. For example, airmiles converted to cash may not be tax free and large referral bonuses paid in airmiles may not be either.
Cashback is technically a gift and gifts aren’t taxable: Cashback is a rebate, not a gift. In many cases, you need to spend to earn cashback, which would disqualify them from being treated like a gift for tax purposes.
Crypto rewards work just like cashback: The IRS treats crypto and cashback differently. For now, crypto is seen as property and property is taxed differently to rewards and rebates.
If you’ve been wondering whether you’ll need to pay tax on your credit card rewards, it can be useful to ask yourself two questions:
Do I need to spend to earn these rewards? If the answer is yes, the rewards are likely nontaxable.
Do the rewards increase my wealth or reduce my expenses? If the rewards reduce your expenses, for example as a rebate or discount, they are likely nontaxable.
These aren’t hard and fast rules, but they can be useful in helping you decide whether or not you need to report your credit card rewards to the IRS.
Announcement 2002-18 clarifies one of the most common areas of confusion around how we can use airmiles:
‘Do I pay tax if I use airmiles earned from business travel for a personal trip?’
The answer is no. Announcement 2002-18 sets out that the IRS won’t take action against anyone who doesn’t report their use of airmiles as part of their taxable income, effectively making them tax-free.
While this announcement provides an important clarification, it’s not a law or regulation. This means it could be changed quite easily in the future by the IRS making another announcement.
Credit card rewards tend not to be taxable if you’re required to spend to get them. This generally includes cashback, reward points, airmiles and other perks like discounts on selected partner purchases. Sign-up bonuses that require a minimum spend are also not taxable. But unconditional sign-up bonuses with no minimum spend requirement may be taxable.
For example, if you take out a credit card with a welcome or sign-up bonus of 6,000 reward points when you spend $10,000 within three months, plus 2% cashback on all purchases, you’ll effectively accumulate $200 cashback plus 6,000 reward points in the first three months.
Let’s assume the reward points are each worth one cent, the total rewards earned are worth $260. If you then spend $10,000 every three months you’ll earn another $600 in cashback, bringing your annual rewards total to $860. Because you spent on your card to earn these rewards, there’s no tax due.
Cashback | Points or miles redeemed | Points or miles converted to cash | Referral bonus of points or miles with no spend required | Airmiles / travel rewards | Crypto rewards earned on spending | Crypto rewards earned on staking | |
Is it taxable? | Generally not | Generally not | Generally not | Potentially | Generally not | Potentially | Yes |
Explanation | Purchase discount/rebate | Purchase discount/rebate | Purchase discount/rebate | Could be considered compensation for services | Promotional program | Treated as property received, fair market value at time of receipt is considered as ordinary income | Treated as taxable income like interest |
IRS guidance | General rebate principles | General rebate principles | Consistent with cashback | Rewards for services may be income | Limited explicit guidance | IRS Notice 2014-21 | Consistent with interest/dividends |
Whether a reward becomes taxable or not typically depends on how they’re earned and the amount. The IRS generally views rewards that have no spending requirement as taxable, because they’re more similar to compensation for a service than to a rebate on spending.
Rewards that may fall into this category include:
Form 1099-MISC is an IRS document that businesses use to report payments to people not on their payroll, like independent contractors or brokers. Businesses also use the form to report payments of rewards, for example like when a credit company pays a reward.
The IRS has a set of thresholds that determine when the form must be used. Thresholds relevant to cashback and credit card rewards include:
Payments of at least $600 in the form of:
Bonuses without a spending requirement | Referral bonuses | Cash rewards deposited directly | |
Taxable? | Yes | Yes | Yes |
Explanation | Considered income; no purchase required | Payment for services | Direct payment, no purchase required |
IRS guidance | General income principles | Services income guidelines | General income principles |
While personal taxes and business taxes work very differently, the impact of credit card reward accumulation on each tax is similar. With personal taxes, consider how you earn rewards and whether they’re a rebate or income. With business taxes, consider the same things plus how those rewards affect your total taxable revenue.
In general, the IRS doesn’t treat cashback rewards earned by businesses as taxable income, as long as those rewards are earned when purchasing business goods or services. Importantly, this doesn’t mean they have no effect on taxable income.
For example, if you used a business credit card to buy office supplies costing $300, that’s a legitimate business expense that you would deduct from your gross income. However, if you received 2% cashback on that purchase, while the reward isn’t taxable, the deduction from your gross income should reflect that you earned the reward.
So, in theory, you should deduct the reward from the business expense to get the true amount to deduct from gross income. In this instance, that means you deduct 2% of $300, which is $6, from the $300 business expense, giving you a new total of $294.
The ‘de minimis’ rule is concerned with small benefits in kind that would be onerous to report. For example, if your employer lets you use their copier for personal use once in a while, you’re technically receiving a benefit in kind because you don’t have to use your own copier.
However, the IRS understands that it may be unreasonable to ask everyone to report every small benefit they receive, with relatively negligible increases in tax collections. So the de minimis rule may come into play, making it unlikely that the IRS would enforce reporting.
There’s no set threshold for the de minimis rule, but there is guidance for certain categories. Benefits in kind that are small and infrequent may come under the rule, exempting the beneficiary from having to report them. Some credit card rewards may fall into this category.
Crypto.com’s Level Up is one example of a popular reward program where you get rewarded in crypto. The Crypto.com Card is available in a range of tiers tied to your crypto stake or subscription level. Crypto.com customers can also access Bitcoin rewards up to 6% on purchases depending on card tier.
As they relate to tax considerations, crypto rewards are not the same as more traditional credit card rewards like cashback, reward points or air miles. The IRS considers crypto assets like Bitcoin or Ethereum to be property. Therefore it may not be considered a rebate and may be taxable.
When you receive property, regardless of how you receive it, it may trigger what is called a capital gain. In very simple terms, your NET worth increased when you received the crypto. This is fundamental to the difference in tax treatment between rebates and property.
Because you receive property in the form of crypto, you need to declare it as income when filing your tax return. However, this doesn’t necessarily mean it will be taxable. Because the value of crypto can change quickly, your capital gain may be smaller when you dispose of the crypto than when you got it.
Let’s say you get $10 worth of Bitcoin as a spending reward. At that moment, you have an ordinary income of $10. If you don’t report this income, you could be in breach of IRS rules.
If your Bitcoin increases in value to $20, you have another $10 capital gain. If you kept the Bitcoin for less than a year, it counts as a short-term gain. If you kept it for longer than a year, it counts as a long-term gain.
If your Bitcoin dropped in value by $5 before you sold it, you would have a capital loss which you would deduct from the $20 capital gain.
It’s also important to consider the tax implications of spending with crypto, regardless of whether rewards are involved. Let’s say you have a card that lets you spend and earn rewards in crypto. When you ‘spend’ the crypto, you’re effectively selling that property for dollars.
There remains a lack of clarity around the limits and thresholds, but selling crypto to use dollars is technically a capital gain.
So as you can see, although the majority of credit card rewards aren’t taxable, there are plenty of scenarios where you’ll need to at the very least report either income or a capital gain.
Let’s look at some illustrative examples. These examples are for informational purposes only and are not tax advice. Always speak to a qualified tax advisor if you’re unsure of your tax position.
$200 cashback from spending on your credit card
At the end of the year, you’ve earned $200 by strategically using your rewards credit for major purchases and everyday spending. You cleared your balance in full each month, so you didn’t pay interest on your purchases.
In this situation, the cashback is not taxable, because you received it as a rebate for spending. The IRS will see a clear distinction between this scenario and receiving income or making a capital gain.
$200 welcome bonus without spending
You’ve been accepted for a premium rewards credit card with some significant perks. One of the perks is a welcome bonus, either deposited directly or credited to your balance. You received this before you spent a cent on your new card.
In this situation, the $200 is taxable because the IRS views it as income and not as a discount or a rebate.
$200 spent on crypto prepaid card
Your crypto prepaid card lets you load crypto to spend in dollars. Every time you load crypto, your crypto balance goes down by the equivalent amount. In effect, this means that you fund each transaction by selling some of your crypto.
In this situation, you’ve received a capital gain. That’s because the IRS views crypto as property and you have been selling property by converting it into dollars for spending.
$200 crypto rewards
You have a credit card that lets you spend in dollars and get rewards in crypto currency. Over the year, you’ve racked up $200 worth of crypto rewards, which you later sell. This is a capital gain, because instead of receiving a cashback rebate, you received property.
If the crypto increased in value after you received it but before you sold it, there’s a second capital gain.
$200 cashback from spending | $200 welcome bonus with no spending requirement | $200 spent on crypto debit card | $200 crypto rewards sold later | |
Is it taxable? | Unlikely | Likely | Unlikely | Likely |
How does the IRS view it? | It’s a rebate | It’s income | It’s a capital gain from selling property you owned | It’s two capital gains, one when you received it and one when you sold it |
Not if you earned them through spending on your credit card. There are some nuances to be aware of, but on the whole traditional cashback and credit card rewards earned on credit card spending are not taxable. If you received any sort of reward without a requirement to spend, they may be subject to taxation.
No, in most cases cashback is considered a rebate as opposed to income. You typically earn cashback on spending. This is different to cash rewards unconnected to your spending, like welcome or referral bonuses. These are usually taxable income.
It depends on the card issuer, the volume and value of the rewards. It’s important to remember that not receiving a 1099 form doesn’t necessarily mean the rewards earned aren’t taxable.
As of October 2025 the IRS treats crypto as property. This means that crypto rewards, whether earned through spending or another method, may be taxable.
When you get crypto, the IRS usually sees that as a capital gain, because your wealth increases. If the crypto increases in value, the IRS will treat that as a second capital gain.
The rewards themselves are not usually treated differently. But receiving rewards may affect other taxable income. For example, if you receive cashback on a purchase, you should deduct that value of the cashback from the value of the purchase when calculating your expenses against your gross income.
Important Information: This is informational content sponsored by Crypto.com and should not be considered as investment or tax accounting advice. Trading cryptocurrencies carries risks, such as price volatility and market risks. Before deciding to trade cryptocurrencies, consider your risk appetite.
Third-party information subject to change.
