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Are Credit Card Cash Rewards Taxable?
By JLP | January 15, 2007
FMF sent me an email asking the following question:
Are cash earnings on credit cards (cash earned as rebates on cards) taxable as income? I had a reader ask and my gut feeling is “yes”, but I thought I’d ask a tax expert.
My response:
Well, I’m FAR from a tax expert but this is the closest thing I could find in IRS Publication 17:
“A cash rebate you receive from a dealer or manufacturer of an item you buy is not income, but you must reduce your basis by the amount of the rebate.”
I realize that cash earnings from a credit card are not the same thing as a manufacturer’s rebate. However, my gut tells me that cash earnings are not taxable because it is essentially a rebate on products you have purchased with after-tax dollars. BUT, I am NOT a tax expert and the IRS doesn’t always do stuff the logical way.
UPDATE: I did find this explanation in my copy of The Ernst & Young Tax Guide 2007
The IRS realistically views rebates as another way of offering a price reduction to induce you to buy a product. Similarly, the dividends that a life insurance company pays you are a reduction of your premium rather than an addition to your gross income. The same rule applies to any cash rebates you might receive from your credit card company for using its card. (Emphasis mine)
What’s frustrating is that I did a search on the IRS website and couldn’t find an answer. A definitive “yes” or a “no” would be nice.
What are your thoughts?
Topics: Credit Cards |