Are business credit card rewards taxable by the IRS?

The IRS treats rewards earned through business spending as a reduction in the cost of what you bought rather than as new income. When you have to spend money to get those rewards, they essentially function as a discount on your purchase. Rewards earned from credit card purchases are generally treated as rebates and not as income for tax purposes.

For example, if you spend $1,000 and get $50 back, your deductible expense becomes $950, not $1,000. This is why you aren’t taxed on that $50. It reduces your expenses instead of adding to your revenue. The dollar value of cash back rewards is straightforward to account for, while rewards points or miles may require additional consideration for financial statements. IRS Publication 525 specifically classifies purchase rebates as non-taxable, providing clear guidance on this treatment. Most credit card rewards programs, including those from business credit cards, follow this rebate principle.

According to the IRS, you should technically reduce your business expense deduction by the amount of any reward received. In practice, many small businesses don’t track every small reward with perfect precision, and the IRS typically doesn’t enforce minor adjustments for small amounts. Still, understanding this principle helps you maintain accurate books when rewards are substantial.

The rebate principle works just like a store discount. If a store gives you 10% off at checkout, that savings isn’t taxed. Credit card rewards function the same way. Rewards points and cash back rewards from a rewards credit card are tied directly to the items purchased and reduce the purchase price, which impacts business financial statements and tax purposes.

Common non-taxable rewards include cashback earned on office supplies or travel expenses, points or miles from your business credit card spending, and discounts or credits earned from ongoing business purchases like ad spend or shipping. As long as you spent money to get the reward, it’s a rebate, not income. The tax implications of different types of rewards can vary, so it’s important to understand how credit cards and business credit cards structure their credit card rewards programs.

If you didn’t have to spend money to earn the reward, the IRS will likely treat it as taxable income. Cash bonuses for opening a business bank account with no purchase requirement, referral bonuses, or prize rewards all fall into the taxable category and are considered income.

Sign-up bonuses and taxes

Whether a sign up bonus is considered taxable income depends on the spending requirement or minimum spending threshold. If a card offers a bonus that requires you to spend a certain amount first, such as “Spend $5,000 in 3 months to get $500 back,” that reward is considered a rebate on those purchases and remains non-taxable. This is typically earned during the introductory period. However, if a card or bank simply gives you $200 just for opening the account with no spending necessary, that sign up bonus is considered taxable income and must be reported.

Card issuers recognize this difference and will send you a Form 1099-MISC if you earn a large bonus with no spend requirement. The credit card company or financial institution is required to report certain rewards as taxable income, and this reporting constitutes tax compliance. They must report non-purchase bonuses over $600 on a 1099-MISC, though this threshold is set to rise to $2,000 in 2026 under new law.

Referral bonuses and promotional rewards

Referral rewards you receive for bringing in new customers are taxable because you didn’t buy anything to get them. The company is essentially paying you for a service, which counts as income. Cash or gift cards received as rewards without a purchase are considered income and are taxable. Other promotional freebies that count as taxable include small business contest prizes, incentive gift cards, or account credits given without a purchase. IRS guidance and tax implications for credit card rewards earned from bank account bonuses or statement credits may differ from those for purchase-based rewards.

Banks will often send a 1099 if you refer multiple friends and earn above the reporting threshold. For example, if a credit card company pays you $100 for referring a friend, that $100 is taxable income and often gets reported on a 1099-MISC.

The underlying principle remains simple. If the reward wasn’t a rebate on a purchase, then it effectively puts money in your pocket, which is why the IRS counts it as income. Whether credit card rewards are taxable depends on how they are earned, and only certain types of rewards constitute taxable income.

No. If you use credit card rewards to pay for a business expense, you cannot deduct that portion of the expense on your taxes. You didn't actually pay money for that part of the expense, so it's not a deductible cost.

For example, if a flight for a work trip costs $800 and you use airline miles to cover $500 while paying $300 in cash, you can only deduct $300. The $500 from miles isn't deductible because you didn't spend that money. If an expense is completely covered by rewards, none of it is deductible since you incurred no actual cost.

Cash back, travel miles, and gift card rewards all follow the same tax principle. The form of the reward doesn't matter. The form of the reward doesn't matter, nor do the types of business credit cards you use. What matters is how you earned it.

Cashback rewards

Cashback is straightforward. If it's earned by spending, it's a nontaxable rebate that reduces your expense. For instance, 2% cash back on a $500 purchase gives you $10 back, making your real cost $490. Businesses rarely adjust their accounting for such small amounts, but technically they should.

If the cashback was a flat bonus without spending, then it's taxable. Cashback earned on purchases stays tax-free, while cashback given freely without any purchase becomes taxable income.

Points and miles

Points and miles don't have a fixed cash value until redeemed, which makes them slightly more complex. Points earned from business spending are treated as rebates and aren't taxed. The IRS doesn't require you to value them as they accrue.

The IRS issued guidance in 2002 stating it "will not assert that any taxpayer has understated tax due to the personal use of frequent flyer miles earned from business travel." This means if you earn airline miles on business trips and later use them for personal travel, the IRS isn't going after you for that benefit. Technically, using a business-earned reward for personal purposes could be viewed as income, but the IRS has explicitly chosen not to enforce that for travel miles.

Statement credits and gift cards

Statement credits from spending work just like cashback. A $50 credit after you spend a certain amount reduces your balance and isn't taxable. Gift cards follow the same pattern. If you got a gift card as a reward for spending, it's a rebate and non-taxable. If the gift card was a free promotion, say "open an account, get a $100 gift card," then it's taxable at face value.

Cash-equivalent rewards like prepaid debit cards loaded with money get treated like cash by the IRS. No matter the reward currency, ask yourself if you had to spend money to get it. That determines its taxability.

Yes, you can generally use business credit card rewards for personal purposes. Many business owners use points from business spending for personal vacations, and there's no law against this practice.

However, if your business is not a sole proprietorship, technically those rewards belong to the business entity. Using them personally could be viewed as a benefit to you. For small businesses or owner-run companies, this is common practice and the IRS has explicitly stated it won't tax individuals for using frequent flyer miles earned on business travel. Just check your company policy or card terms if you have partners or employees, as there might be rules about reward usage.

Keep clear records if you use business-earned rewards for personal purposes. This prevents you from accidentally deducting an expense that was actually paid with points, which would be incorrect.

The smartest approach to business credit card rewards involves strategic planning around both earning and redemption. Charge all legitimate business expenses to your card to earn rewards while maintaining full tax deductions. Then use those rewards for personal benefits or non-deductible expenses. This way you're not affecting your business deductions, and you get personal enjoyment tax-free.

For sole proprietors, this strategy works seamlessly since you own both the business and the rewards. You can earn points on tax deductible business expenses like inventory, advertising, travel, or incidental expenses, then redeem those points for personal vacations, gift cards, or statement credits for personal purchases. The IRS won't tax you on this personal use, and you still get the full business expense deduction.

If your business has partners or operates as a corporation, check your operating agreement or credit card policy for employees first. Technically, rewards earned on a corporate card belong to the business entity. Many small companies allow owners to use rewards personally, but getting this in writing prevents future disputes. Some businesses split rewards based on ownership percentages or establish clear policies about reward usage upfront.

Consider timing your redemptions strategically as well. Save rewards for large personal expenses that you can't deduct, like family vacations or home improvements. Meanwhile, continue paying for business expenses with cash or credit to maintain those deductions. This approach maximizes both your tax deductions and your reward value.

You can also use rewards to cover business expenses that typically aren't deductible or are only partially deductible. Entertainment expenses, certain meals, or club memberships might be perfect candidates for reward redemption. Since you're not getting a full deduction anyway, using rewards here doesn't cost you tax benefits while still providing business value.

For businesses with multiple employees, establish clear policies about who can earn and use rewards. Business credit cards for employees that earn rewards for the company should have usage guidelines. Some businesses let employees keep rewards from their assigned cards as an additional perk, while others centralize all rewards for company use. Whatever you choose, document it clearly to avoid confusion and potential tax issues.

Most business owners won't receive any tax forms for their standard credit card rewards. But certain situations trigger reporting requirements that you need to understand. Knowing when to expect a 1099 form and how to handle it keeps you compliant with IRS rules.

Form 1099 for standard rewards

If your rewards came from spending, you won't receive a 1099 form from the card issuer. Credit card companies don't issue 1099-MISC forms for cashback, points, or miles that come from purchases because those aren't income in the IRS's eyes. So if you earned $500 in regular cash back, don't expect a tax form. You also don't need to proactively report that anywhere on your return, aside from the subtle reduction in deductible expenses we discussed earlier.

When you'll receive a 1099-MISC form

Credit card issuers will send Form 1099-MISC if you received $600 or more in taxable rewards from them in a year. This includes cash bonuses, referral payments, or prizes. Starting in 2026, this threshold rises to $2,000. The form will usually show the total amount of miscellaneous income in Box 3, labeled "Other Income."

Even if you don't get a form because your rewards were below the threshold, that money is still technically taxable and should be reported. The threshold is just for the issuer's reporting duty, not for determining taxability. For example, if you referred several clients and got $50 each, totaling $300, you won't get a 1099 since $300 is less than $600, but you still need to count that $300 as income.

If you're a sole proprietor, you'd include taxable rewards in your business income on Schedule C. If your business is an LLC or corporation, include it in gross receipts or miscellaneous income on the company return.

1099-K for certain reward redemptions

In rare cases, you might receive a 1099-K. Some card issuers or platforms treat certain reward redemptions as third-party payments. For instance, if you receive a prepaid debit card loaded with reward money or sell your points, it might trigger a Form 1099-K, which is usually for payment transactions.

Marketplace platforms that give cashback might also issue 1099-K if you exceed thresholds. However, after recent law changes, the 1099-K threshold sits at $20,000 and 200 transactions as of 2025, so this is unlikely for normal reward use.

What to do if you receive a 1099

If you receive a 1099-MISC or 1099-K for rewards, report that income on your business tax return in the appropriate place, often as "Other Income." The IRS gets a copy too, so your return should match up. If you ignore it, you could get an IRS notice. Keep that form with your tax records for at least three years.

For example, a bank gives you a $700 bonus for opening a business account. You'll likely receive a 1099-MISC showing $700, which you'd include in your business's taxable income.

Proper documentation and bookkeeping for credit card rewards protects you during audits and ensures accurate tax filing. While many small businesses overlook reward tracking when they're already busy tracking business expenses, establishing good habits now saves headaches later. The key is knowing what to track and how to record it in your books.

Track rewards by type

Maintain a simple log or use accounting software to track the rewards you earn and note their nature. Record what rewards you earned and whether they came from spending or not. For example, if you get $50 cashback from office supplies, note it as a rebate for that expense. If you get a $100 referral bonus, note it as miscellaneous income.

Modern accounting software often has categories for credit card rewards or rebates. Using these categories can automatically offset expenses and make year-end bookkeeping easier. Treat purchase-based rewards as an expense reduction in your books, and treat taxable rewards as other income.

A simple spreadsheet works too. Create columns for Date, Reward Type, Amount, Source, and Taxable Status. For instance, "Jan 15, Cashback, $30, Staples purchase, No (rebate)" or "Mar 10, Referral bonus, $100, Amex referral, Yes (taxable)."

Save your documentation

Keep credit card statements, reward program summaries, and any 1099 forms for at least three years, which is the standard audit window. This documentation supports both your expense reporting and how you treat rewards if questions arise.. Having statements that show you earned rewards via spending can substantiate why you didn't report them as income.

Also save business receipts for purchases tied to rewards. If you only deducted the net expense after rewards, you'll want records to show that calculation. Retain records of rewards and related expenses just like other tax-relevant documents. IRS Publication 334 provides guidance on small business recordkeeping requirements.

Accounting entries

For those who want specifics on bookkeeping, here's how to record these rewards. If you got $50 cash back on office supplies, you'd credit or reduce your Office Supplies expense by $50 in your accounting ledger. If you got a $100 bonus, you'd record it as Other Income of $100.

Most small businesses simply net it out or count it when redeemed, and that's usually fine unless amounts are large. The key is consistency in your approach and having documentation to support your treatment.

When to consult a professional

If recordkeeping or reporting gets complex, consult a CPA or tax advisor. Red flags that indicate you need expert advice include earning $5,000 or more in bonuses, receiving multiple 1099 forms for rewards, dealing with international rewards with different rules, or managing rewards across multiple employees. While this guide covers most situations, professional advice is valuable for unusual cases.

Don't try to game the system by converting rewards to cash in artificial ways. In a 2021 tax court case, a couple bought huge amounts of gift cards to earn points and then liquidated those points to cash. The court ruled those rewards were taxable because they were essentially manufacturing income.

If you deliberately loop transactions just to earn cash-like rewards, the IRS can reclassify those "rewards" as taxable income. In the court case mentioned, a couple had to pay taxes on over $300,000 of credit card rewards because they essentially bought those rewards via prepaid gift cards. Use rewards in the normal ways intended, not through manufactured spending schemes.

Managing business credit card benefits properly requires a few simple habits that keep you compliant and maximize your benefits. These practices help you avoid surprises at tax time while getting the most value from your rewards program.

Separate business and personal spending

Use a dedicated business credit card for business expenses and avoid mixing personal purchases on it. This way, all rewards are clearly tied to business expenses and there's no confusion in accounting. Clean separation makes bookkeeping simpler and helps you track which rewards came from legitimate business spending.

Document reward-related transactions

Save statements and note how you applied rewards, so you can substantiate deductions or income treatment if needed. Good documentation prevents problems during audits. Keep these records for at least three years, just like your other tax documents.

Don't overspend for rewards

Buying things just for points isn't wise and can lead to financial trouble. It might also create tax issues if it turns into a scheme. Only pursue rewards that make business sense for your operations and cash flow.

Watch out for large bonuses

If you're getting a big reward, anticipate the tax. For instance, if you're planning to refer many clients and earn $1,000 or more in bonuses, set aside some money for taxes on that income. No one likes a surprise tax bill, so plan ahead when you know taxable rewards are coming. This is especially important if you have a high limit business credit card that enables larger spending and correspondingly bigger rewards.

Consult a tax professional if unsure

If you earned an unusually high amount in rewards or face a complex situation, get advice from a CPA. Complex situations include multiple card programs, international rewards, or corporate cards with employee use. Professional guidance helps you handle these correctly.

Tax rules can change, such as the reporting thresholds we discussed, so stay informed each tax year on any updates regarding reward taxation. When managed properly, business credit card rewards truly are a tax-free perk for your company

Most business credit card rewards remain tax-free because they're considered rebates, not income. You generally won't owe tax on your cash back, points, or miles earned through business spending. Only rewards that you didn't have to spend money to get, like sign-up or referral bonuses without purchase requirements, are taxable and should be reported as income.

To stay on the right side of the IRS, use your rewards wisely, keep good records, report any taxable bonuses, and avoid trying to abuse reward programs. Credit card rewards can give your company a discount on every purchase while boosting your bottom line. By understanding the tax rules, you can maximize these rewards confidently without worry at tax time.

For businesses looking to simplify their reward tracking and expense management, the Brex corporate card offers a streamlined solution. Brex automatically categorizes expenses, syncs with accounting software, and provides real-time visibility into spending across your entire team. Since every transaction is tracked and categorized from the start, you'll have clean records showing exactly which expenses were offset by rewards versus paid in full. This makes tax preparation significantly easier and ensures you're claiming the right deductions without accidentally double-dipping on rewards-covered expenses.

The Brex platform also eliminates the guesswork around reward taxation by clearly separating earned rewards from promotional bonuses. You'll know exactly which rewards came from spending versus sign-up incentives, making it simple to identify any potentially taxable amounts. With unlimited virtual corporate cards for different spending categories and automatic receipt matching, Brex creates an audit trail that satisfies both IRS requirements and internal controls. Plus, the Brex rewards program focuses on spend-based earnings that remain non-taxable, helping you maximize benefits while staying compliant with tax regulations.

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