If you have a rewards credit card, you are probably thinking that you are receiving free money. However, this is not always the case. The IRS considered credit card rewards to be either an award or a rebate, which is how they determine whether they will be considered as taxable income.
Credit Card Rewards after Transactions
If you had to make a transaction in order to receive the reward, the IRS does not consider it as taxable income. This is because the IRS looks at them as rebates. You did not actually get any free money, instead you were just given back some of your money that you already had, or a discount as the IRS looks at it.
Take a look at our Seattle CPA post on Form 1040x, “Form 1040x Explained,” to learn more about how to file an amended return.
Credit Card Sign Up Bonuses
Majority of credit card sign up bonuses are exempt too. This is because they require you to make some type of financial transaction to receive them anyways. Usually, you have to spend a certain amount of money before getting the award or you do not receive the award until after you have made your first purchase. Either way some sort of transaction had to be made.
No Transaction Needed
Huddleston Tax CPAs can help you if you are being rewarded without having to make any sort of transaction, the IRS does consider this taxable income. Therefore, before signing up for a credit card make sure you read the terms and conditions, including the fine print, so you can know if the credit rewards will be considered taxable income or not. Be sure to take a look at our Seattle CPA site!