Bottom Line:
Whether a credit card reward is taxable depends on whether the Internal Revenue Service (IRS) considers the reward to be a rebate or an award.
When a Reward is Not Taxable
Generally, when you earn a reward by making a financial transaction such as a purchase, the reward is considered a rebate or discount and is not taxable. Common rebates include cash back, miles, or points towards another purchase.
Note that many credit card sign-up bonuses require some kind of financial transaction on your part such as charging a certain amount on your card to get the reward. In this case, the reward is considered a rebate or a discount rather than an award and is not taxable.
When a Reward is Taxable
If no transaction is required to get the reward, the IRS generally considers that award to be taxable income. For example, if you automatically receive a cash reward for signing up for an account that award is likely to be reported by the bank as a miscellaneous taxable income. Check the terms and conditions of your credit card agreement to determine whether the credit card issuer considers its rewards to be reportable awards rather than discounts or rebates.
Rewards Donated To Charity Generally Are Not Deductible
When the IRS considers a reward to be a discount and not income that means the reward is not taxable but also means that any donation of the reward to charity cannot be deducted. However, you could get a tax deduction if you redeem your rewards for cash back and use that money to make a donation to a charity.
Chase Sapphire Preferred® Card
With a 60,000 point new cardmember bonus when you spend $4,000 in the first 3 months of having the card, plus 2x points on travel and at U.S. restaurants — all for a $95 annual fee — this card is one of the top rewards card values available. Chase points are transferable to 9 airlines and 4 hotels, giving you the option of booking directly via these loyalty programs for some massively lucrative award redemptions in first & business class or at 5-star luxury hotels & resorts.
