Credit Card News
Advertising Disclosure
Credit-Land.com is an independent, advertising-supported web site. Credit-Land.com receives compensation from many credit card issuers whose offers appear on our site. Compensation from our advertising partners impacts how and where their products appear on our site, including, for example, the order in which they may appear within review lists. Credit-Land.com has not reviewed all available credit card offers in the marketplace.
Credit Card Applications » News » Products » The Tax Implications Of Credit Card Rewards

The Tax Implications Of Credit Card Rewards

By
Add to Favorites:
The Tax Implications Of Credit Card Rewards

Any rewards doled out as a bonus for opening up a new bank account, for instance, count as income and may be subjected to taxation. If the values of such rewards total $600 or more, the bank that issued them must mail out 1099 tax form to both the recipient of the rewards and the IRS. Citibank, in fact, has been busy sending 1099-INT forms to eligible checking and savings account customers who earned over 25,000 American Airlines miles over the past year as a bonus through new account recruitment initiatives. Citi reported that each mile has a value of 2.5 cents.

However, rewards earned the “traditional” way, via making purchases with a rewards program credit card, are tax-free. This is because these types of rewards, cash back and others, are categorized by the IRS as a discount on the price of the goods and services purchased – much like a coupon.

“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,” said a spokeswoman from Citibank, Emily Collins, in an e-mailed statement, according to one online news source.

The mandatory reporting threshold for the IRS is $600, which is why reward point bonuses have not heretofore often been subjected to taxation. However, as competition amongst credit card issuers grew stiff throughout the past year, lenders were continually upping the ante in their efforts to lure new, creditworthy customers into opening up a credit card account by offering them enticing bonuses simply for signing on.

The IRS is always coming up with new ways to prevent Americans from underreporting their income, which creates what is known as a tax gap. The tax gap is the difference that exists between the amount that is owed and the actual amount that is paid. According to the IRS, 82% of the tax gap is due to taxpayers underreporting their income.

In their efforts to decrease the instances of underreported income, the IRS is introducing a new tax form this year, the 1099-K, which will affect individuals who sell goods or services online and receive credit card payments via PayPal or similar merchant accounts.

Add to Favorites:

Related News:

Frugal Fashionistas Rejoice: Century 21 and Alliance Data Launch New Credit Card

By Elizabeth Nelson, Posted: September 26, 2016

New York City-based bargain department store Century 21 is partnering with Alliance Data to launch a new credit card program. A favorite of fashionable bargain-hunters, Century 21 operates 10 stores across the greater New York City area ... Continue reading
Talking About Money Equals Happiness

By Dar Dowling, Posted: September 23, 2016

Love and money are the two biggies in life and relationships, and now, according to a new study by TD Bank, couples who talk about money have a higher happiness factor than those that don't. Continue reading
Credit Card Limits Up, Up and Away

By Dar Dowling, Posted: September 22, 2016

Credit card limits had an upswing during the first six months of this year, according to a new study by Experian, with credit card limits in both the subprime and deep subprime credit range equaling $6.4 billion – the largest amount in the ... Continue reading
Get the latest news, articles and expert advice delivered to your inbox. It's FREE.
Get 0% Intro APR on Balance Transfers and Purchases for 21 months. After that, the APR will be 12.24%-22.24% based upon your creditworthiness.
For Excellent/Good Credit
1% cash back on select purchases, terms apply
For Fair Credit
Guaranteed $500 Unsecured Credit Limit
For Bad Credit