Part 5: Are Credit Card Bonus Miles and Points Taxable? Mostly No, says Chase, Citi, AMEX

• Part 1: Why Apply? Myths about Credit Card Sign-up Bonus Offerings
• Part 2: How to fix my credit score (FICO)?
• Part 3: What are the best credit cards for Beginners interested travel-reward credit cards?
• Part 4: What is the Difference between an Authorized User and Joint Account Holder?

It is U.S. tax filing season.  Are credit card rewards taxable? Are frequent flyer bonus miles taxable? Are gifts or gift cards taxable?  I googled in the internet to look for facts, noticed CitiBank in 2012 sent out an unpopular 1099-Misc forms for the year 2011, which created more confusion than before.  The most relevant responses from IRS regarding the tax status of  frequent flyer miles and gift cards are:

• http://www.irs.gov/pub/irs-drop/a-02-18.pdf
• http://www.irs.gov/pub/irs-tege/p_4090_fed_0305_text.pdf

The IRS responses are clear about treatment of gift cards, but not clear about frequent flyer miles.

My understanding is the following:

1. Are credit card sign-up bonus miles or points taxable? Answer: No, unless payment in cash.  In general, do not redeem for cash.
• Chase: Chase $400 sign-up bonus may be taxable, whereas, redeemed via frequent flyer programs or gift cards are not taxable.
• American Express: "No, the sign-up point bonus earning is not taxable."
• CitiBank: if the bonus points required minimum spending, then it is likely not taxable. However, if free miles or points rewarded via credit card upgrade, i.e. no purchase activity, it can mean taxable. I can think of free upgrade to Hilton HHonors Surpass credit card.
2. Are credit card rebates miles, points or cash earned through purchase activity taxable? Answer: No.
3. Are checking account sign-up bonus cash taxable? Answer: Yes
4. Are gifts or gift cards, including from employer, taxable? Answer: No, unless worth more than $600.  See Schwab free $200 Apple Gift Card rule section as an example.

 The value of all Schwab offers received will be reported as Other Income on your Form 1099-MISC if, when combined with Other Income earned on your retail brokerage account, total $600 or more during the calendar year

For confirmation, I emailed Chase, American Express and CitiBank.  If they say explicitly not taxable, then Form 1099-MISC is not expected from them.  Their responses are included below:

From Chase

Thank you for contacting Chase. 

The reward points earned through our credit card are not taxable, but the redemptions made may be taxable. Redemptions like cash back deposits, cash back checks are taxable. On the other hand, redemptions like statement credit, gift cards, travel redemptions are not taxable. For more information,
please contact your tax consultant.

I hope this information is of assistance to you. 

Thank you,

Hemant Shukla
Customer Service Specialist

1-800-493-3319

From American Express

I'll be glad to assist you in this matter.

No, the sign-up point bonus earning is not taxable.

I see that you can earn 50,000 Hilton HHonors Bonus Points if you make $750.00 in eligible purchases within the first 3 months of your Cardmembership.

Bonus Points will be awarded to the your account 6 - 8 weeks after you have met the purchase requirement. 

For your information, eligible Purchases means purchases for goods and services minus returns and other credits. Eligible purchases do not include fees or interest charges, balance transfers, cash advances, purchases of travelers checks, purchases or reloading of prepaid cards, or purchases of other cash equivalents. Additional terms and restrictions apply. 

Also, your account should be current to avail this offer.

I hope this information helps. Please feel free to write back if you need further assistance.

Sincerely,   
   
Shalini Yadav
Email Servicing Team 
American Express Interactive Services


From CitiBank

We value your patronage and want to ensure your inquiry is resolved.

On 2/5/13 your account was enrolled in an offer to earn 40,000 bonus points after spending $1,000.00 on new purchases within 4 months. This offer expires on 6/5/13.

Generally Points that are earned through purchase activity are not taxable (for example, points earned through credit card or debit purchases). However, Bonus Points not associated with purchase activity are taxable (for example, Points awarded for opening a Checking Account, Points for enrolling in credit card paperless statements or goodwill awarded points).

We hope this information is helpful. 

Take-away: as long as no cash payment, or no gifts or gift cards totaled over $600, there would be no tax payment.