Comments on: Paying Taxes On Credit Card Rewards

By: Patrick

Patrick — Tue, 18 Dec 2007 17:45:05 +0000

What about rebates and rewards for business credit cards? I believe these are treated differently are they not? Uh-oh… I see another post coming on!

By: jim

jim — Tue, 18 Dec 2007 14:47:58 +0000

pcooper: that’s an interesting question to which i have no answer, but i always just claim the total amount (not the amount after cashback).

By: pcooper

pcooper — Tue, 18 Dec 2007 13:24:46 +0000

So, does that mean that for instance, when I charge a charitable contribution, I have to reduce the amount that’s considered a contribution? What do I do when I get the cash back in a different year than I made the contribution?

By: Posco

Posco — Mon, 17 Dec 2007 22:06:15 +0000

@pcooper: It doesn’t feel like income to me at all, since the amount I receive is BASED ON how much I spend. And besides, that money DOES come from the merchant, albeit indirectly. Merchants pay a certain percentage fee to the credit card company to process the transaction. Your “1% cash back rebate” is just a slice of that fee.

By: pcooper

pcooper — Mon, 17 Dec 2007 21:56:47 +0000

It feels much more like income to me, because it comes from the Credit Card Company, not from the merchant I bought the product from.

But I’ll be happy to treat it as nontaxable if that’s what the general consensus is.

By: Llama Money

Llama Money — Mon, 17 Dec 2007 19:27:09 +0000

Kurt,
You’re paying *sales tax* on the amount. The issue at hand is whether or not you should be required to pay *income tax* on it. I agree that it should be treated as a discount / rebate, and therefore not subject to income tax. I didn’t “earn” the money, which should pretty much disqualify it from the income tax.

Not sure what the IRS has to say though.

By: Kurt

Kurt — Mon, 17 Dec 2007 18:46:53 +0000

I understand the thought that its a rebate, but doesn’t it matter that you have already paid a tax on the full amount. When you buy the CD for 10$ and get .50$ back, you are still taxed on the whole 10$. I don’t know how accounting would handle that, but to me you are paying taxes on the rebate already.