The Tax Implications Of Credit Card Rewards - Products News

ADVERTISING DISCLOSURE

ADVERTISING DISCLOSURE:
Credit-Land.com is an independent, advertising-supported web site. Credit-Land.com receives compensation from most 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

The Tax Implications Of Credit Card Rewards
The content is accurate at the time of publication and is subject to change.
This content is not provided by Citi. Any opinions, analyses, reviews or recommendations expressed here are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by the Citi.

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.

Disclaimer: This editorial content is not provided or commissioned by the credit card issuer(s). Opinions expressed here are the author's alone, not those of the credit card issuer(s), and have not been reviewed, approved or otherwise endorsed by the credit card issuer(s). Reasonable efforts are made to present accurate information, however all information is presented without warranty. Consult a card's issuing bank for the terms & conditions.
All rates and fees, and other terms and conditions of the products mentioned in this article/post are actual as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.
Add to Favorites:

Related News:

Discover Cuts Price Protection Benefits from Credit Cards

Posted: August 20, 2018

If you have a Discover card and like the Price Protection benefit that comes with it, you might want to take advantage of it sooner than later. Discover has decided to do away with this benefit. This benefit will no longer be part of your ... Continue reading
The New Citizens Bank Cash Back Plus World MasterCard

Posted: August 17, 2018

Citizens Bank has rolled out their new Cash Back Plus World MasterCard, offering cardholders 1.8% cash back when they go shopping. This is an upgraded version of their previous card. With this new version, cardholders can earn unlimited ... Continue reading
Bonus for the IHG Rewards Club Premier Card Gets an Upgrade

Posted: August 16, 2018

Have you been thinking about applying for the IHG Rewards Club Premier credit card? If so, you may want to check it out now because they just increased the bonus - bumping it up from 80,000 points to 100,000 points. Cardholders get the ... Continue reading
Get the latest news, articles and expert advice delivered to your inbox. It's FREE.
Earn 5% cash back at different places each quarter like gas stations, grocery stores, restaurants, Amazon.com, or wholesale clubs up to the quarterly maximum each time you activate.
For Excellent, Good Credit
INTRO OFFER: Discover will match ALL the Miles you've earned at the end of your first year, automatically. For example, if you earn 30,000 Miles, you get 60,000 Miles.
For Excellent, Good Credit
0% Intro APR on Balance Transfers and Purchases for 18 months. After that, the variable APR will be 15.74% - 25.74% based on your creditworthiness
For Excellent, Good Credit
You've successfully subscribed!

Please specify the following:All these fields are optional

Your Credit History
Themes you are interested in:

By providing this information you help us make our news letters more useful and informative. Thank you!