Even if you get a ‘cash back’ reward card that you spend like cash, it’s not considered income, so shop away!
Dear Cashing In,
If I use business credit card rewards to get gift cards to various retailers, can I use them personally, and is it considered taxable income to me? — Jan
Oftentimes, the rewards we receive from credit cards can feel like income. You receive money from cash-back cards. You earn airline flights or hotel nights with travel cards. And many reward cards, as you point out, are linked to shopping portals where you can redeem for many different kinds of gifts, including gift cards. Receiving those feels like income, too.
Fortunately, the Internal Revenue Service has been consistent on the topic of tax treatment of reward points. Much of the IRS guidance on this topic comes from an earlier era, before the explosion of credit card reward programs. It specifically addresses frequent flier miles, which have been around longer, but tax experts have said that the same approach applies to other forms of credit card rewards.
In short, the IRS does not consider rewards from credit cards to be taxable. Instead, the agency views the rewards as a rebate — the same as if you received a coupon for having bought something. It’s as though you bought a set of eight Ginsu kitchen knives while watching an infomercial late one night, and because you acted fast, the company threw in six steak knives for free. You would not owe taxes on the value of those “free” steak knives .
This holds true even if you are using business rewards for personal use. IRS announcement 2002-18 is clear: “The IRS will not assert that any taxpayer has understated his federal tax liability by reason of the receipt or personal use of frequent flyer miles or other in-kind promotional benefits attributable to the taxpayer’s business or official travel.”
The exception would be if your employer for some reason considers the points to be compensation and includes that value on your W-2. In that case, you would have to include that figure in your income, but that’s rare.
You might also recall the hand-wringing from a few years ago, when Citi mailed some customers 1099 forms listing “miscellaneous income” they received in the form of reward points for opening a bank account. Rewards from credit or debit card purchases, though, were not affected, and they remain sheltered from taxes.
There are plenty of tax questions that arise regarding reward points, such as valuing them for charitable contributions or medical expenses. But the IRS and accountants consistently say that points and miles have no value as income or expense.
So you should rest easy about using business rewards for personal gift cards. Happy shopping!