Are Credit Card Rewards Taxable in 2025? What IRS Says

What tax pros wish everyone knew about card rewards

Here’s the thing almost everyone misses about card rewards: for tax purposes, most of what you earn from swiping is treated like a discount, not income. That’s not a quirky loophole, it’s a long-standing IRS view. IRS Announcement 2002-18 says rewards earned by spending are purchase price adjustments (rebates), which means not taxable. If your 2% cash back knocks $20 off what you effectively paid for groceries, the IRS treats it like… you paid $20 less for groceries. Boring, but super helpful.

Where people get tripped up, myself included years ago when a stack of 1099s ruined a perfectly fine January, is anything you’re paid without buying something. That can be taxable as “other income.” Think referral bonuses, bank-style “open-and-get-$300” promos, sometimes a one-off statement credit that isn’t tied to spend. The label your card issuer uses is less important than the substance: did you have to purchase something to get it? If no, there’s a decent chance it’s income.

Quick reality check because it’s October 2025 and we’re all staring down year-end:

• Purchase-based rewards (points, miles, cash back from actual spending): generally not taxable under IRS Announcement 2002-18.
• Non-spend bonuses (referrals, account-opening gifts that don’t require purchases): commonly taxable as income.
• 1099 forms don’t make something taxable, they just report it. No 1099 doesn’t equal tax-free. Flip side: getting a 1099 doesn’t magically convert a rebate into income either; sometimes issuers misclassify.

Some practical numbers that matter when the mail (and email) flood hits:

• 1099-MISC is typically issued when you have $600+ of miscellaneous income from a payer in a tax year (common for referral bonuses). That $600 threshold comes from the general 1099-MISC reporting rules.
• 1099-INT shows up when you earn $10 or more of interest from a payer for the year. Some banks treat cash bonuses as interest and send a 1099-INT even if it wasn’t a card reward per se.
• Delivery timing: Payers must send most 1099s to you by January 31, 2026 for 2025 income. Your January paper pile, and the random emails you miss in Promotions, matters a lot.

Context from the market this year: card issuers are still pushing aggressive welcome offers heading into holiday spend, competition for wallet share is tight with rates still relatively elevated and transaction volumes decent. That means more people snagged referral bonuses and one-time credits in 2025. Translation: more 1099s than you expect, right when you’re trying to remember where you put the W-2.

What tax pros wish everyone knew, and honestly, what makes your return cleaner, is setting expectations now. It’s Q4 2025, which is a great time to: (1) list any referral links you used or shared; (2) note any bonuses that hit without spend; (3) keep issuer emails that call a perk a “statement credit rebate” vs “cash bonus.” Small wording, big difference. If this is starting to feel too nuanced, you’re not wrong; the line between a rebate and income can be annoyingly fact-specific. But the framework is simple enough to work with.

Bottom line for this section: Spending-based rewards behave like discounts. Payments you get without buying something can be taxable. 1099s report, they don’t decide. And your January 31, 2026 mailbox is the referee you can’t ignore.

Points and miles that act like discounts: usually not taxable

Here’s the IRS logic in plain English: when a reward is triggered by you buying something, it functions like a price reduction, not income. The IRS put this in writing years ago, IRS Announcement 2002-18 (issued in 2002) says credit card “rebates” tied to purchases are treated as adjustments to the purchase price. That’s why your 1-5% cash back doesn’t show up on a 1099 in most normal cases. It lowered what you paid; it didn’t pay you for nothing.

Concrete example: you spend $1,000 on a 2% cash-back card. You get $20 back. Your effective purchase price is $980. If it’s personal spend, that’s usually the end of the tax story. If it’s business spend, yes, your deductible expense is the net $980, not the full $1,000. That “netting” is the tax effect. Same idea if you’re stacking category boosts, say 5% at groceries or rotating 5% in Q4 for holiday shopping. These are still purchase-linked rebates; the extra percentage doesn’t turn them into income. It’s just a bigger discount because the issuer wants you swiping at supermarkets and toy stores right now.

Welcome offers? If the bonus requires spend, e.g., “Earn $500 after $3,000 in the first 3 months”, that’s generally a rebate too, because the trigger is the purchasing. Again, the IRS framework from 2002 supports this treatment. What changes the character is when the bank hands you money without a purchase requirement (think a no-spend checking signup bonus) or pays you for an action like a referral; those can be taxable and may come with a 1099. I know, the labels aren’t always clean, banks sometimes call the same-looking thing a “bonus” in one email and a “statement credit” in another. Annoying, but it matters.

Quick, real-world snapshots from this year: (1) 5% grocery promos have been everywhere in 2025 because issuers are chasing high-frequency categories while average basket sizes climbed with sticky food inflation; (2) a bunch of cards targeted 10-15% back on first-time Instacart/Grubhub purchases for Q4, still rebates, still tied to spend; (3) travel cards leaned into “extra 5x-10x on hotels through portal bookings” ahead of holiday travel, again, purchase-linked, so treat them like discounts to your trip cost.

I’ll say the quiet part: if you mix personal and business on one card, the tax math gets messy fast. The rule is simple, rebates reduce the related expense, but the bookkeeping gets hairy. If 60% of a $1,000 charge is business and you earn $50 back, only $30 of that rebate reduces your business deduction. That’s why keeping receipts and basic notes helps. It’s boring. It saves you real money later.

And yeah, this can start feeling over-engineered. But the practical takeaway is steady: if the reward came from you buying something, it’s almost always a price cut, not income. If you’re on the fence, like a welcome bonus that “looks” like a rebate but the terms are vague, keep the offer email and the statement showing the spend and the credit. You’re giving your future self (or your CPA in March) the breadcrumbs they need.

• Cash back 1-5%: Treat as a discount. No income.
• Spend-triggered welcome bonus: Generally a rebate under IRS Announcement 2002-18.
• Category boosts (groceries/travel/Q4 promos): Still purchase-linked, still rebates.
• Borderline personal vs business: Keep receipts and note splits; deduct the net amount.

Reminder: 1099s are more common for non-spend items. For spend-based rewards, your documentation mostly protects your deductions, not your income line.

The traps: bank-style cash bonuses, referrals, and the 1099 surprise

Here’s where people trip in January. If the bank or issuer gave you money (or miles) without you buying anything, that’s usually taxable. Think checking/savings sign-up cash, gift cards for opening an account, or credit card referral cash. The IRS sees those as income, not price reductions.

Bank account bonuses (no spending required): Most banks treat these as interest or other income. If it’s treated as interest, you’ll typically get a Form 1099-INT with the bonus in Box 1 (Interest income). The reporting threshold for 1099-INT is $10 in a calendar year, which is tiny. If the bank classifies it as a promotional payment (not interest), it may come on a Form 1099-MISC in Box 3 (Other income). Either way, it’s taxable for 2025. Quick real-life note: I picked up a $300 checking bonus last year and it showed up as 1099-INT, full $300, banks do that every day.

Credit card referral bonuses (consumer cards): If you sent your friend a link and the bank paid you $100, $200, whatever, that is taxable. Issuers commonly report these on Form 1099-MISC, Box 3, if your total referral income from that issuer is ≥ $600 for the year. Key detail that catches folks: the income is taxable even if it’s under $600. The $600 threshold is only about whether you get a form, not whether you owe tax. If you pocketed $500 in referrals across two card issuers and nobody sent a form, you still report it.

Miles/points for opening an account (no spend): This is the gray-but-not-really gray area. If you received points or miles just for opening a bank account or card, without having to purchase anything, issuers may impute a cash value and report it. You might see a 1099-MISC, Box 3, where the bank assigns, say, ~1¢ per point (varies; some promos go higher or lower). Historically, banks have used different valuations, there was a widely reported 2012 case where an issuer valued airline miles at 2.5¢ for tax reporting, which created headaches. Point is, you can be taxed on non-cash rewards when they’re not tied to actual spending.

Timing and housekeeping (January 2026): Forms for your 2025 activity generally arrive in late January. Payers must furnish 1099-INT and 1099-MISC to you by January 31, 2026 (paper or e-delivery if you opted in). Watch your email portals too; banks love to tuck these behind a tiny “Tax Docs” link. Match each form to your notes: which bonus, which account, which date. If totals look off, compare to your screenshots or statements from earlier this year, Q1 bank promos were hot again as deposit competition stayed elevated, then ask for a corrected form if needed.

Which form shows what in 2025:

• 1099-INT, Box 1: Bank interest and many checking/savings cash bonuses. Reporting threshold: $10.
• 1099-MISC, Box 3: Referral bonuses, gift cards, statement credits unrelated to spend, and imputed value of points/miles for non-spend promos. Issuer reporting threshold: $600 per payer; income still taxable below that.

Side note I probably shouldn’t admit: I keep a messy spreadsheet that says “Chase $900 checking 2025? 1099-INT maybe, check portal.” It’s dumb but it works, because the IRS computer matches these forms, and you want your numbers to agree. If your 1099 never arrives and you expected one, ask. And if you get a form for $0.37 from a stray savings account; yeah, you report it with the rest of your interest.

Bottom line: Spend-based rewards act like rebates; non-spend rewards act like income. Expect 1099-INT or 1099-MISC in Jan 2026 for 2025 activity, and don’t let the $600 myth fool you, the tax meter runs from dollar one.

Business cards: rewards lower your deduction, which changes the math

For business spending, spend-based rewards aren’t income; they’re rebates that reduce what you actually paid. The tax result is simple but easy to miss: if your LLC puts $10,000 on a card and you earn $200 in cash back tied to that spend, your deductible expense isn’t $10,000. It’s $9,800. That $200 effectively lowers your cost basis. Same story for points and miles earned from purchases, treat them as price reductions when earned via spend, not income. The IRS has said this for years in different corners of guidance (see IRS Publication 535, Business Expenses, 2024 edition, which describes rebates as reductions of expense, and IRS Announcement 2002-18 for miles earned on business travel, which the Service did not treat as taxable to individuals).

How does that hit your tax forms? If you’re a sole prop filing Schedule C, you deduct the net amount you actually bore after rewards. That could mean booking office supplies at $9,800 instead of $10,000, or recording $10,000 in Office Expense and a separate “Credit card rewards (contra-expense)” line of $200 in Part V (Schedule C, Line 27a) to show your math. Either way, the bottom line is the same: expense reduced. S-corp/C-corp/partnership? Same concept, record a contra-expense in the GL so your P&L shows the net cost. A very vanilla entry is: Dr Expense $10,000; Cr Accounts Payable/Credit Card $10,000, followed later by Dr Cash $200; Cr Expense (contra) $200. If that sounded too accounting-y: you’re just knocking $200 off the expense bucket you used.

Points and miles: yes, those too. If 100,000 points were earned from $50,000 of ad spend and you value them at, say, nothing for tax purposes until used, careful. The earning event, if tied to spend, is still a purchase price reduction. When you eventually redeem for flights, that’s usually a separate, non-deductible personal benefit unless it’s a bona fide business trip. The key is the earn-side drives the deduction: the more rewards you earn from spend, the lower your deductible expense that year.

Mixed-use happens all the time. You buy a laptop on the business card, 80% for work, 20% your kid’s Roblox, don’t do that, but if you did, only 80% of the net cost is deductible. Same with cell phone plans, SaaS seats, even Amazon orders. Track the business percentage, then apply the rewards reduction to that portion. Sloppy records = messy deductions and potential adjustments if audited. I’ve seen agents back-of-the-envelope allocate down to 60/40 because the receipts were vague. That stings.

Quick practicals before I forget: (1) Be consistent all year. Reduce the expense basis or book a contra-expense, pick one and stick with it. Consistency is an accounting policy in real life, not just in textbooks. (2) If you’re on accrual, you still reduce the expense; timing of the cashback posting doesn’t convert it into income. (3) Don’t ignore annual fees: the fee itself can be deductible if ordinary and necessary, but statement credits that offset the fee reduce that deduction too.

One more real-world note, because it’s Q4 and spend is ramping for holidays, ad pushes, inventory, you name it: rewards look great, but carrying balances at business card APRs will eat any benefit. Average assessed APRs on business credit cards this year are north of twenty percent in many datasets, which makes a 2% rebate look tiny if you revolve. Not advice, just math.

Bottom line for business: Spend-based rewards reduce your deductible expense. $10,000 spend with $200 back = $9,800 deduction. Apply it to points/miles earned from purchases too. Track mixed-use cleanly. On the books, record a contra-expense or reduce the expense basis, and keep that method consistent across 2025.

Valuing miles and points: what the IRS cares about (and what it doesn’t)

This is where people get tripped up, and I get why. Points feel like money, but for tax purposes they’re usually treated like price adjustments. The backbone here is IRS Announcement 2002-18 (from 2002), which said frequent flyer miles or similar promotional benefits earned from business travel aren’t taxable. The market’s read, for two decades now, has been: if you earned the miles or points by spending, those rewards are rebates, not income. In other words, they reduce your expense basis (what we covered earlier) instead of creating taxable income.

Where valuation does matter is when the reward itself is taxable, which is a different animal:

• No-spend bonuses (open an account, get 50,000 points without swiping a dollar) can be taxable.
• Referral bonuses often are taxable. Issuers issue Forms 1099-MISC when they think the value hits the reporting threshold.
• Bank/ brokerage account bonuses paid in miles or points are frequently treated like interest or miscellaneous income and may be reported on 1099-INT or 1099-MISC.

Two practical mechanics to keep straight:

• 1099 threshold: Payers generally must issue a 1099 when taxable payments to you are $600 or more in a calendar year (per payer). That’s 2025 law. Below that, you may not get a form, but the income can still be taxable. Yes, annoying.
• Issuer-assigned value: When a reward is taxable, card issuers sometimes assign a cents-per-point value on the 1099 (e.g., 20,000 points x $0.01 = $200). I’ve seen values around 1.0¢ a point in practice, but it varies by bank and program. Keep the 1099 and your statements, don’t fight the number unless it’s clearly wrong.

And here’s the part folks overcomplicate: using the points later, redeeming for a flight or hotel, doesn’t create a new tax event. The tax point is when you received a taxable reward (if it was taxable at all). Your Paris redemption next spring? Not taxable. The taxable moment, if any, was the referral bonus posting last March. That’s it.

But don’t self-impute values for spend-earned rewards. If you ran $10,000 through a card and earned 20,000 points, those points are a rebate that reduces your deductible expense (business) or your cost basis (if you’re capitalizing something). You don’t book $200 of income just because you personally think the points are worth 1 cent each. The IRS isn’t asking you to do that, and frankly, that’s a rabbit hole you don’t want.

Common triggers that cause headaches:

• Large referral hauls late in the year. Q4 is when people push referrals. If you cross $600 in issuer-valued rewards, expect a 1099-MISC in early 2026.
• Commingling taxable and rebate rewards. A checking bonus paid in miles is not the same as spend-earned credit card points. Split them in your records.
• Trying to re-value an issuer 1099. You might think your points are worth 1.7¢. The 1099 says 1.0¢. Unless there’s a factual error, the path of least resistance is to accept the 1099 value.

Quick example to anchor it: you get a 25,000-point referral bonus in July. The issuer values points at $0.01, reports $250 on a 1099-MISC. That’s taxable in 2025. Later, you redeem those points for a $375 flight. No second tax event. Meanwhile, the 60,000 points you earned from your ad spend ain’t income; they reduced your deductible ad expense when you posted the rebate.

One last real-world note because it’s Q4 and redemptions spike: travel prices are choppy this year, and airline award charts keep moving around. That doesn’t change your tax picture. It just changes your personal sense of value. If this feels convoluted, I hear you. Keep two buckets in your head: rebates from spend (not income) and taxable promos (income, usually with a 1099 around $600+). Save the 1099s, annotate your ledger, and you’re good.

Keep: issuer 1099s for taxable items, and don’t invent values for spend-earned rewards. Ignore: redemption value changes, they don’t create new tax.

2025 year-end moves: small tweaks that avoid big headaches

Here’s the practical Q4 cleanup so you’re not sorting receipts in February while your coffee goes cold. Keep it simple: line up your offers, log the taxable stuff, and plan cash for the IRS so April doesn’t sting.

• Pick welcome offers tied to spend if you want non-taxable. Bank terms vary, but the IRS generally treats rewards earned by making purchases as rebates, not income (see IRS Pub. 525). That $500 statement credit after $4,000 in spend? Typically a rebate. A $300 “banking bonus” for parking cash with no spend? That’s usually taxable interest/other income. I know, it’s fussy. But it matters.
• Track referral bonuses by issuer, aggregate matters. If your referrals with one bank creep toward $600 for the year, expect a Form 1099-MISC. The reporting threshold for prizes/awards and other income is $600 for 1099-MISC (IRS rule), and issuers batch by EIN. I keep a simple sheet: columns for issuer, type (referral, deposit bonus), date, and amount. Not fancy, just accurate.
• Business owners: reconcile Q4 so rewards reduce expenses the right way. Earlier this year a client’s books overstated ad expense by 3.4% because card rebates weren’t netted to spend. In Q4, download year-to-date statements, total credits by category, and post them against the related expense accounts before you close December. That preserves margins and your 2025 tax deduction is correct the first time.
• Set a reminder for late January 2026 to pull e-1099s. Issuers publish electronic 1099s, MISC and INT, on or before January 31. Lots of folks miss those because paper mail is inconsistent. Log in, check “Tax Documents,” and download PDFs. If I’m honest, I missed a bank portal once (Ch, two years ago?) and spent an annoying hour filing a state amendment. Not doing that again.
• If you received a taxable bonus, plan cash or estimated tax now. The IRS underpayment safe harbor is paying 90% of current-year tax or 100% of last year’s tax (110% if your 2024 AGI was over $150k). If you picked up, say, $1,200 in 1099-MISC bonuses, set aside taxes at your marginal rate, or make a Q4 estimate by January 15, 2026. Better to earmark cash now than to get clipped with penalties in April.

One more thing on gray areas: some issuers label things in weird ways, “points boost,” “goodwill credit,” etc. Substance beats label. If it’s tied to spend, I treat it as a rebate. If it’s paid for referrals, deposits, or account opening with no spend, I treat it as income. And yes, there are edge cases; when in doubt, note the terms and keep the 1099 if it shows up.

Market context does help planning. Q4 holiday spend is ramping, airfare is still volatile this year, and some banks are pushing higher referral caps to grab year-end share. That combo means it’s easy to cross the $600 threshold with a couple of big referrals. So keep the issuer-by-issuer log current, especially if you’re juggling Amex/Chase/Citi at once.

Quick checklist for this week: pick spend-tied offers, update your referral log, net card rebates against expenses, set a Jan 28-31, 2026 calendar reminder for e-1099s, and earmark cash for any taxable bonuses.

I might be off by a day on the exact portal posting cadence, some banks slip a day or two, but the January 31 deadline is the one the IRS cares about. Hit your reminders and you’ll be fine.

Bottom line: which rewards are income in 2025, and which aren’t?

Here’s the crisp version you can actually use when you sit down with your 2025 numbers in January. I’ll keep it tight and honest.

• Spend-required rewards (cash back, points, miles): generally not taxable because they’re treated as rebates/discounts off your purchases. If you had to swipe, tap, or hit a minimum spend to earn it, it usually reduces your cost basis, not your income. That applies to category multipliers, intro bonuses that require spend, targeted statement credits, Amex Offers-style rebates, those are discounts.
• No-spend bonuses and consumer referral bonuses: typically taxable. Think: open-and-collect cash for a bank account with no spend, friend referrals that pay you, “install our app and get $50,” or straight cash deposits for keeping a balance. Expect a form if you’re over the reporting thresholds.
• Business cards: same concept, different ledger. Rewards tied to spend are rebates that reduce deductible expenses. Don’t book them as income; net them against the related costs so your deduction reflects the after-rebate amount. If you get a taxable no-spend business bonus or referral, that’s income to the business.

What forms to expect and when: Per the IRS 2025 instructions, payers generally issue a Form 1099-INT for $10+ of interest and a Form 1099-MISC for $600+ of miscellaneous payments in a year. Credit card referral cash often shows up on 1099-MISC; bank account opening bonuses commonly arrive as 1099-INT if the bank treats them as interest. Issuers have until January 31, 2026 to send e-1099s for 2025 activity. Tiny but important note: you must report taxable income even if no form arrives, forms are a payer reporting threshold, not a taxpayer permission slip.

Practical stuff because it always gets messy in Q4: holiday spend is ramping, airfare is still jumpy this year, and several banks are nudging referral caps higher to win year-end share. That combo means it’s very easy to pop past $600 in 1099-MISC territory with a couple of referrals. I keep an issuer log in Sheets, date, type (rebate vs. bonus), amount, and where it landed (card vs. bank). Not fancy, just works.

1. Keep everything: monthly issuer statements, year-end summaries, and any 1099s. Download PDFs before they disappear behind a redesign, ask me how I know.
2. Match totals: reconcile 1099-INT/1099-MISC amounts to your tracker. If a form is wrong, request a corrected copy; if a form never shows, report the income anyway if it’s taxable.
3. Net rebates against expenses: for personal taxes, no entry if it’s a purchase-tied rebate. For business, reduce the related expense. That’s the clean, defensible way.
4. Flag gray areas: statement credits with no spend, bank “promos” that look like interest, or referral miles with a stated cash value, save terms, screenshot, and note your treatment.

If you remember one thing: if you had to buy something to earn it, it’s probably a discount, not income.

And yeah, there are edge cases. The tax code has a knack for turning simple words into homework. If you feel the rules starting to spiral, anchor on the purchase test (rebate) vs. no-purchase (income), check what form you got, 1099-INT $10+ interest, 1099-MISC $600+ miscellaneous, and document your reasoning. You’ll be fine.

Frequently Asked Questions

Q: How do I handle credit card rewards on my 2025 tax return if some came from spending and some didn’t?

A: Short version: sort them into two buckets. 1) Purchase-based rewards (points/miles/cash back earned by swiping or by meeting a spend requirement) are generally non-taxable rebates under IRS Announcement 2002-18, no reporting, but keep statements. For business cards, that rebate reduces your deductible expense basis (spend $1,000, get $20 back, you deduct $980). 2) Non-spend bonuses (referrals, “open-and-get-$300” with no purchases) are taxable as other income. Those usually land on Schedule 1 (Form 1040), line 8z. Expect a 1099-MISC if a payer totals $600+ to you for the year, and a 1099-INT if they code it as interest and it’s $10+; but remember, taxability depends on substance, not the form you get. I keep a simple spreadsheet with three columns: date, type (rebate vs. income), amount, and it saves me headaches in April.

Q: What’s the difference between cash back from purchases and a referral bonus for taxes?

A: Purchases = rebate, generally not taxable. Referrals (and no-spend account-opening gifts) = income, taxable. The IRS said this back in Announcement 2002-18 for purchase-based rewards. If you didn’t have to buy anything to get the money or miles, assume it’s income. If you did have to spend, it’s usually a price adjustment. Clean and simple.

Q: Should I worry about a 1099 I got for a sign-up bonus that required $4,000 of spending?

A: Annoying, but don’t panic. If the bonus required purchases, it’s typically a non-taxable rebate under Announcement 2002-18, even if the issuer sent a 1099. Step 1: Ask the issuer (in writing) for a corrected 1099, cite that the bonus was contingent on spend. Attach proof (offer terms, statements showing the $4k). Step 2 (if they refuse): You can report the 1099 amount and take an offsetting negative adjustment on Schedule 1, line 8z with a description like “Card rebate, non-taxable under IRS Ann. 2002-18,” or you can omit it and retain documentation. Talk to your CPA about which approach fits your risk tolerance. I had a stack of mismatched 1099s one year, paper trail won the day.

Q: Is it better to chase $300 bank bonuses or hit spend-based card offers if I want fewer tax headaches?

A: If you want simple, spend-based card rewards win, rebates aren’t taxable, and you still rack up points/miles. Bank-style “open-and-get-$300” without required purchases is usually taxable, so assume your marginal rate takes a bite (e.g., 24% bracket → after-tax ~$228). Alternatives: 1) Prioritize card sign-up bonuses that require spend you already have (groceries, utilities), not manufactured spend. 2) If you do bank bonuses, batch them and set aside 25-35% for taxes the moment it hits. 3) Consider non-taxable value plays like targeted statement credits tied to spend, or higher-earning categories that offset real expenses. And yep, a high-yield savings account is taxable too (1099-INT at $10+), but the predictability can be worth it. Personally, I default to spend-based bonuses in Q4 when holiday bills are already doing the heavy lifting.

@article{are-credit-card-rewards-taxable-in-2025-what-irs-says,
    title   = {Are Credit Card Rewards Taxable in 2025? What IRS Says},
    author  = {Beeri Sparks},
    year    = {2025},
    journal = {Bankpointe},
    url     = {https://bankpointe.com/articles/credit-card-rewards-taxable-2025/}
}