citi logo
My Account

Are Rewards Taxable? It All Depends...

February 03, 2012
Amy Miller, Director of The Tax Institute at H&R Block

You may have read in the news about Citi sending a small number of U.S. Consumer Bank clients 1099-MISC tax forms as a result of signing up for a airline miles giveaway promotion for opening a checking account. We want to make sure you know that rewards and airline miles that are provided in connection with a purchase on a credit card are routinely not subject to individual income tax reporting. However, if you receive a gift for opening a bank account - whether cash or airline miles - the value of that gift is generally treated as income and subject to reporting. This is separate and distinct from miles or points earned by our credit card customers for their purchases. To be sure there is clarity on this matter, we are pleased to share the following guest blog entry from the tax filings experts, H&R Block.

There's been a lot of discussion lately around the taxation of air miles and what that means for consumers when it comes time to filing their tax returns. If you're asking yourself, "Why am I being taxed on a gift or reward?" I may have some answers for you.

First of all, consumers who sign up for any kind of benefit program, whether it's with a bank, retailer or airline, should know that for tax purposes, there is a difference between an incentive and a rebate. We all so frequently interchange the words "reward," "gift" or "bonus" in our everyday language but when it comes to the IRS and tax time - these terms have very different meanings. And very different tax outcomes.

Everything boils down to one point - why are you actually issued the "reward"?

Most consumers are used to getting what many retailers and credit card companies refer to as a "reward" when you fulfill certain spending requirements. For example, lots of us accrue air miles or cash back rewards when we make purchases on our credit cards.

In this instance, these "rewards" are not taxable. These types of account "rewards" are actually considered rebates on spending and therefore don't qualify as income.

The confusion kicks in around "rewards" or "gifts" given for opening an account, like a bank account. Anytime a consumer receives an incentive for opening an account, the value of the item is considered taxable income. This means that anything from an iPad, fancy toaster-oven, air miles or even smaller items like concert tickets or branded lawn chairs are considered taxable income, not tax free "gifts." Why? Because you received the item as an incentive rather than as a rebate for your spending. Things like a mug or a pen - officially referred to in tax law parlance as de minimus, or "minimal things" - are not considered taxable items.

The bottom line is this: "gifts" from companies might be taxable. But if you're ever confused about the difference, you can always check with a tax professional to make sure.

Sign up to receive the latest news from Citi.

Select Preferences