Are cash back cards taxed?

Most people get credit cards with cash back rewards programs to save money, however, it is possible for you to get taxed on certain types of rewards. However, most rewards will not be taxable since the IRS qualifies the credit card rewards that you earn through purchases as rebates. 

With a plethora of credit cards that offer competitive rewards, which sometimes appear too good to be true, it is very important to be educated on the exact laws and regulations that might affect you as a taxpayer. 

So what do I have to pay taxes on?

Any sign-up bonuses or welcome offers you receive that give you cash back or rewards without a requirement of minimum spending qualify as income and will have to be reported to the IRS. This means that you can be liable to pay taxes on those benefits. For these rewards, you will probably be sent Form 1099-INT (if your rewards income is $10 or more) or Form 1099-MISC (if your rewards income is $600 or more) from your credit card issuer. If you are issued these forms, you should report the rewards as income on your tax return. Just to be safe, you should report all these rewards on your tax returns if you do not receive it. 

What do I not have to pay taxes on?

Any forms of rewards that require spendings, such as airline miles, sign-up bonuses with minimum spending and cash back rewards are not required to be reported as taxable income. So feel free to reap the benefits of your cards when you earn points through organic spending!

What about business credit cards? Do they operate the same way?

No, if you use cash back rewards for business expenses that are tax-deductible, your deductible expenses will decrease. This means that if you need to spend $100 in deductible business expenses and use $10 in cash back rewards to offset those expenses, your overall write off will be $90, less than the usual $100. You would then indirectly pay more in taxes. In addition, any signup bonuses that do not require minimum spending will have to be reported to the IRS as taxable income.