Cash back rewards are generally not taxable income
The IRS treats most cash back rewards as a reduction in what you paid for something, not as income you earned. If you buy a $100 item with a card that gives 2% cash back, you got a $2 discount — the IRS does not tax discounts. You report the $98 net cost, not the $100 sticker price.
This rule holds for the vast majority of cash back cards and programs. The money lands in your account as a credit or statement balance, and you do not receive a tax form for it. You will not see a 1099 or any other document reporting the cash back to the IRS.
The exception is narrow: if a card issuer or rewards program gives you cash back or a bonus without requiring you to make a purchase — a sign-up bonus just for opening the account, for example — that can be taxable. The difference is that you did not buy anything, so there is no purchase to discount.
Key Takeaways
- Cash back earned by making purchases is treated as a discount on those purchases and is not taxable.
- Sign-up bonuses and rewards given without a purchase requirement may be taxable and should be reported as miscellaneous income on your tax return.
- You will not receive a 1099 form for purchase-based cash back, but you may receive one for large sign-up bonuses depending on the card issuer.
- The card issuer determines whether a bonus is taxable based on whether a purchase was required to earn it.
- Keeping records of your cash back and bonuses helps if the IRS ever questions your return.
When sign-up bonuses count as taxable income
A sign-up bonus — cash or points awarded just for opening an account or meeting a minimum spend within a set period — sits in a gray area. The IRS position is that if you did nothing to earn the bonus except open the account, it is income. If you had to spend money to unlock it, the bonus is a discount on those purchases.
Most card issuers do not send a 1099 for sign-up bonuses, even large ones. This does not mean they are not taxable; it means the burden is on you to report them if they are. A bonus of $500 or more is more likely to trigger a 1099, though the threshold varies by issuer and is not may provide.
The safest approach: if a bonus required no purchase or a very small one relative to the bonus size, treat it as taxable income. Report it on your tax return as miscellaneous income. If you received a 1099, you must report it — the IRS has a copy.
How to report cash back and bonuses on your tax return
For purchase-based cash back, you do not need to report anything separately. The discount is already baked into the cost basis of what you bought. If you deduct a business expense, you deduct the net amount after cash back.
For a sign-up bonus or other reward not tied to a purchase, report it on Schedule 1 (Form 1040), line 8, as "Other income." The line is labeled for miscellaneous income. Write "Credit card bonus" or "Sign-up bonus" next to the amount so the IRS knows what it is.
If you received a 1099-MISC or 1099-NEC reporting the bonus in box 3 (other income) or box 1 (nonemployee compensation), you must report the same amount on your return. The IRS will match your return to the 1099 they received from the card issuer.
Business expenses and cash back deductions
If you use a business credit card and earn cash back on business purchases, the cash back reduces your cost basis for the expense. You deduct the net amount after the reward.
Example: You spend $1,000 on office supplies for your business and earn $20 in cash back. You deduct $980, not $1,000. The cash back is not separate income; it is a reduction in the cost of the supplies.
If you use a personal card for business expenses and then reimburse yourself, the same logic applies. The cash back belongs to you personally, not the business, so it is not part of the business expense deduction.
State tax treatment of cash back rewards
Most states follow the federal rule: purchase-based cash back is not taxable. A few states have not issued clear guidance, but none actively tax routine cash back rewards.
If you live in a state with a sales tax and use cash back to reduce the price you paid, you do not owe sales tax on the cash back itself. The sales tax was already calculated on the amount you paid at checkout.
Sign-up bonuses follow the same federal-state pattern. If it is taxable income federally, it is taxable in your state as well. Check your state's tax authority website if you are unsure, but most states do not have separate rules for credit card rewards.
Keeping records of your rewards and bonuses
Save your credit card statements and any emails from the card issuer documenting sign-up bonuses or large rewards. If you received a 1099, keep that with your tax records for at least three years.
For business use, track which purchases earned cash back and how much. This is especially important if you are deducting business expenses — you need to show the net cost after rewards.
If you report a sign-up bonus as income and the IRS later questions it, your card statement and the issuer's terms will show whether the bonus required a purchase. Having that documentation makes the conversation much simpler.
Frequently Asked Questions
Do I have to report cash back from everyday purchases?
No. Cash back from regular purchases is treated as a discount, not income. You do not report it on your tax return or receive a 1099 for it. The IRS does not tax discounts.
What if my sign-up bonus was $10,000 or more?
Large bonuses are more likely to trigger a 1099-MISC or 1099-NEC from the card issuer. If you receive one, you must report the amount on your tax return. If you do not receive a 1099 but the bonus was substantial and required no purchase, report it anyway as miscellaneous income to be safe.
Can I deduct cash back as a business expense?
No. Cash back reduces the cost of the purchase but is not a separate deduction. If you spent $1,000 on business supplies and earned $50 cash back, you deduct $950. The cash back is a reduction in cost, not an expense itself.
Do I owe taxes on points I have not redeemed yet?
No. Points and miles are not taxable when you earn them. They become taxable only if and when you redeem them for something of value, and even then, only if they were earned without a purchase requirement. Points earned by spending are still treated as discounts.
What if I earned cash back in one year but received the 1099 in the next year?
Report the income in the year you received the 1099, not the year you earned the bonus. The 1099 is dated for the year it was issued. If there is a mismatch between when you earned it and when the form was sent, keep a note explaining the timing in case the IRS asks.