Will Credit Card Rewards Be Classified as Taxable Income?
Your credit card rewards can add up to a significant yearly sum. Many people wonder whether they need to consider their credit card rewards as a taxable income. For the issue of personal taxes and credit cards, the answer is very simple. However, when it comes to taxes and credit card rewards for reimbursable purchases as an employee, this complicates things.
Here is the good news. You don’t have to consider your credit card rewards as taxable income when it comes to paying your personal taxes. Credit card rewards are known as rebates for the money that you will spend. The government does not tax rebates. The rewards include points, cash back, travel rewards or some other reward feature. When the price reduces to something that you will buy is not considered a form of taxable income for you. This is just a reduction in revenue for the company that you are buying it from.
Rewards for Reimbursable Purchases as an Employee
This issue becomes a little more complicated when you earn rewards as an employee. Paying for expenses using personal credit cards usually your employer will reimburse you. The rewards you receive when you pay for the business expenses with your personal credit cards are a taxable benefit.
However, it is very difficult to distinguish the rewards earned from personal benefits with those earned as a result of business expenses. Therefore, there is no taxable benefit as long as you do not convert your rewards into cash back or some similar type of direct benefit. It also needs to bet clear that you are not using your credit cards as a means of avoiding taxes.
It is best to use your credit cards that have a simple discount or travel rewards when making reimbursable business expenses. This will save you the hassle of trying to determine how much of your rewards are for the personal benefit and how much are a business benefit, and thereby taxable income.