Are credit card rewards taxable? What to know before you file

People love the idea of free money, and many regularly use cash-back and other rewards credit cards to make purchases. Whether it’s crypto-back, cash-back, or travel points, these programs offer a little kickback for everyday spending. 

But while the perks are popular, many cardholders don’t realize they can be taxable – until an unexpected IRS notice arrives. Understanding how to report credit card rewards correctly can help you avoid unpleasant surprises when it’s time to pay taxes.

In this guide, we’ll explain whether credit card rewards are taxable – so you can enjoy the perks without any penalties.

Types of credit card rewards

From a tax standpoint, credit card rewards generally fall into two categories: taxable and nontaxable. To determine which category a reward belongs to, consider the following:

• Did you receive an accession to wealth? In other words, did you receive something valuable that made you better off financially?
• Do you have complete dominion and control over that wealth, meaning can you use, sell, or spend it however you want?

Taxable rewards

When a reward gives you something of value – and you can use, sell, or transfer it freely – the IRS treats it as taxable income. While the IRS doesn’t tax most credit card rewards, it does make exceptions based on how you earned the reward.

You’ll typically need to report taxable rewards like sign-up and referral bonuses if they aren’t tied to a purchase since the IRS classifies them as ordinary income. You also need to report lockup rewards (such as those from staking or yield programs) once you gain control of the asset.

Nontaxable rewards

The IRS considers rewards like travel miles, cash-back rewards, and crypto-back earned through spending nontaxable since you have to spend money to receive them. In these cases, the IRS treats the reward as a rebate or discount, not income.

According to Rev. Rul. 76-96, rebates don’t count as gross income for qualifying retail customers and don’t trigger a taxable event. However, the ruling also notes that rebates reduce the cost basis of the purchased property, and sellers can deduct them as an ordinary and necessary business expense under IRC §162.

2025

Crypto Tax
Guide is here

CoinTracker's definitive guide to Bitcoin & crypto taxes provides everything you need to know to file your 2024 crypto taxes accurately.

Get startedLearn more

Types of taxable rewards

Here’s a more detailed breakdown of reward types that the IRS generally considers taxable:

Sign-up rewards

When you receive a bonus – typically cash or reward points – for opening a credit card account without making a qualifying purchase, that value is considered taxable income. Since you didn’t have to spend money to earn it, the IRS treats it as a reward for participation and requires you to report it.

Referral rewards

Many companies offer referral bonuses to users who help bring in new customers. The IRS treats this as compensation received for services – whether you’re paid in cash, points, or crypto – and considers it taxable under IRC §61(a)(1). These rewards must be reported on your tax return.

Lockup rewards

Some crypto credit cards allow users to lock up tokens (similar to staking) in exchange for ongoing rewards. Locking up tokens itself doesn’t trigger a taxable event since you aren’t receiving anything at that point. However, any rewards or new tokens earned from that lockup are considered ordinary income once you gain dominion and control over them. Because you receive something of value that you can use, sell, or transfer, it increases your wealth and must be reported.

Credit card rewards tax forms

If you receive $600 or more in rewards (cash, crypto, or otherwise), the card issuer may send you a Form 1099-MISC. If your accumulated rewards are less than $600, you likely won’t receive a 1099 – but you’re still legally required to report the income. In most cases, you’ll enter it on Schedule 1, Line 8z ("Other Income") of your tax return.

Types of nontaxable rewards

Not all credit card rewards count as income. These common types are generally considered nontaxable – though there are exceptions depending on how you use them. It’s important to note that converting rewards to cash can change their tax status.

Travel miles

The IRS treats travel miles earned through personal or business spending as rebates – not income. According to Announcement 2002-18, these rewards aren’t taxable as long as they’re used for upgrades, free travel, or similar benefits. However, converting miles into cash may make them taxable.

Cash-back rewards

Cash-back rewards are among the most popular credit card perks, typically giving users a percentage of their spending back in cash, points, or both. The IRS generally treats cash-back rewards as discounts or rebates on purchases – not as income – which means they’re not taxable. Because of this, for most cardholders cash-back isn't taxable.

Crypto-back rewards

While the IRS hasn’t issued explicit guidance on crypto-back rewards, general tax principles – such as those in Rev. Rul. 76-96 – suggest that crypto-back received as a rebate on spending is likely nontaxable. Under this ruling, rebates reduce the cost basis of the purchased property. In other words, you don’t report the crypto as income when received; instead, you adjust the cost basis of the item and assign a basis to the crypto itself.

Here's an example:

Let's say you use a crypto reward card to buy a $1,000 item and receive $10 worth of Bitcoin (BTC) as a rebate. The cost basis of the item becomes $990, and the cost basis of the Bitcoin is $10. Since the total value remains $1,000, no accession to wealth has occurred, and there are no immediate tax implications.

However, if you return the item and keep the Bitcoin, you retain the $10 in value without a corresponding purchase. In that case, you must report the $10 as taxable income. 

Also, if you later sell the Bitcoin, you must report any capital gains or losses, just like any other crypto transaction. The IRS will classify the gain as short-term or long-term, depending on how long you held the asset after gaining dominion and control. All crypto disposals must be reported on IRS Form 8949, including any gains from selling crypto-back rewards. Tools like CoinTracker can help by tracking your cost basis and acquisition dates and calculating capital gains to simplify things when it’s time to file.

Sign up for CoinTracker and simplify tax season

Filing crypto taxes can feel overwhelming – but CoinTracker makes it easier.

Whether you’ve earned crypto through spending or received taxable bonuses from a crypto credit card, CoinTracker helps you track cost basis, calculate capital gains, and report income accurately. With integrations to hundreds of centralized and decentralized exchanges, wallets, and DeFi platforms, CoinTracker provides a complete view of your holdings, income events, staking rewards, crypto credit card activity, and taxable transactions across your entire crypto portfolio.

Join over 2 million crypto users who trust CoinTracker to simplify tax season. Get started for free and take the stress out of crypto tax reporting.

Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.