IRS alert: Your credit card rewards could be taxed — here’s the hidden rule to know

As tax season ends, Americans are being warned to check if their credit card rewards must be reported in tax returns. Most credit card rewards are not taxable, but two types can still be taxed. Taxpayers must understand the “referral” rule and the “no spend” rule before filing their 2025 taxes.

The IRS says rewards earned from spending are treated as discounts or rebates, not income. This includes cashback, airline miles, and hotel points from normal purchases, as per the report by The Sun. These regular rewards do not need to be taxed. Welcome bonuses that require spending money first are also not taxable.

No-spend bonus rule

A welcome bonus with no spending requirement is taxable. If you get a reward just for opening a card, it may be treated as income. The card company may send a 1099 form for this reward. You must report this amount in your tax return. This applies whether the reward is cash, gift cards, or points. Even if you don’t receive a 1099 form, you still must report it.

Referral bonus rule

Referral bonuses are also considered taxable income. This happens when you refer friends or family to a credit card. If you get cashback for referrals, it must be reported. Airline miles or points from referrals are also taxable. Taxpayers must report this using Form 1099-MISC if income is over $600. The taxpayer is responsible for reporting it correctly, as noted by The Sun.

Study on tax refunds

A new survey found many Americans plan their tax refund spending months in advance. The poll included 2,000 U.S. taxpayers. About 79% expect to receive a refund this year. Around 52% say refunds are important for budgeting, as cited by The Sun. About 77% plan to spend refunds on necessities. Top uses include rent, groceries, and credit card debt. Some people plan to spend refunds on luxuries like clothes and entertainment. The average expected refund is about $1,700.

Paying taxes with a credit card

Americans can pay taxes with a credit card to earn rewards. But processing fees apply when paying this way. Fees range from 1.87% to 2.35% of the tax amount. For example, paying $5,000 in taxes adds at least $93.50 in fees. Taxpayers must compare rewards with the extra cost.

Tax deadlines

The deadline to file 2025 taxes is April 15. Maine and Massachusetts have a deadline of April 17. People can request an extension until October 15. Extension requires filing Form 4868.

Refund timing

Refunds may arrive within about 21 days after filing. Paper filings may take longer due to processing delays. The IRS provides a “Where’s My Refund?” online tool. The tool works within 24 hours for e-filed returns, as stated by The Sun.

Some credit card rewards — especially referral bonuses and no-spend bonuses — may be taxed, so taxpayers should report them correctly.

FAQs

Q1. Are credit card rewards taxable by the IRS?

A. Most rewards from spending are not taxed, but referral bonuses and no-spend welcome bonuses may be treated as income by the Internal Revenue Service.

Q2. Do I need to report credit card referral bonuses on taxes?

A. Yes, if you earn referral rewards, you may need to report them as income, especially if they total more than $600, according to IRS rules.