The payment of taxes on the earned rewards is a common question that arises in many of the credit card reward programs. According to the Internal Revenue Service (IRS), a customer needs to report about the credit card rewards if they fall under the type of taxable income. However, this is not applicable for most of the cards, as the IRS views the various cash-back programs and rewards as discounts. Yet again, huge sign-on bonuses for a card will need to be reported as extra income.
For customers using their credit cards for business, the keeping of the records is mandatory. This requires accurately subtracting all of the rebates from the paid amount to minimize the amount that is deduced from the taxes. Failing to pay the full price can cause the increasing of the burden than the taxable income.
Note that some of the available types of credit cards never fall into the category of income. This includes travel points, cash back programs, sign-on bonuses, and purchases made using the points that are obtained only after spending money. However, customers need to use the 1099-MISC tax form if they intend to use any amount of money. This form is made available to the customers from the credit card company along with the intended bonus.
The customer is also responsible for reporting the same income to the IRS since the state would not carry it out all the time. Moreover, every state law in the country is different and the tax law is subjected change accordingly as well.
The customers must take special note that no amount of money must be received for reporting on the taxes. Taxable income falls under anything provided to the customer without the need to carry out a purchase such as gift cards, points, etc. Consulting with the credit card company is the best way to clear any doubt regarding whether to pay the taxes or not.
Relying on a tax professional is also a recommended way to get clarification regarding the various norms related to tax. The 1099-MISC form is highly important in this segment and should be well considered even with an income scale that does not qualify.
The IRS maintains strict monitoring in tracking all of the income obtained from any of the sources. Remember, ignoring the regulations pertaining to the income can result in tax penalty.