Are business credit card rewards taxable?

A business credit card can be a valuable financial tool, and that’s particularly true if you choose one that offers cash back or travel rewards. Still, it’s easy to get confused about the rewards you earn with a business credit card and how the IRS treats them.

If you’re wondering whether business credit card rewards are taxable, the simple answer is no. Your business credit card rewards are not considered income and, therefore, they are not taxable. Unlike money earned through traditional work, credit card rewards are considered rebates on items you purchased with a credit card.

If you purchase a product and then submit the manufacturer’s rebate form to receive a check, that money is also not taxable. Similarly, if you use an app such as Ibotta to earn cash rebates on your purchases, this is also not taxable income.

So, whether you receive your credit card rewards for your business in the form of cash back, a statement credit, a gift card or a travel credit, you won’t pay taxes on those rewards. For a more detailed breakdown about business credit card rewards and the IRS, keep reading.

What the IRS says about business credit card rewards

Business credit card rewards typically come in the form of points, cash back or miles. Here’s how the IRS handles each:

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Cash back

As mentioned previously, cash back rewards are treated the same way rebates are treated. That’s why cash back earned with a rewards credit card for business won’t be taxed if you earned those rewards based on a percentage of your spending.

Points and miles

The same general rule applies to other types of rewards you could earn with a business credit card as a rebate, including hotel points and airline miles.

There are several issues related to the benefits of business credit cards, according to the IRS. These include how and when income is valued and how to identify “personal use benefits attributable to business (or official) expenditures versus those attributable to personal expenditures,” for which there are no official guidelines.

As a result, the IRS “has not pursued a tax enforcement program with respect to promotional benefits such as frequent flyer miles.”

What business rewards are taxable?

While credit card rewards earned with a business credit card are not considered taxable income, there are instances where other types of rewards require you to pay taxes.

A common example includes bank account bonuses you earn for opening a new business checking or savings account. These bonuses are different because you are not required to spend money to earn them, so they’re not technically rebates.

For the most part, that’s the main difference between taxable rewards and those that are not taxable. If you’re earning any kind of bonus from a financial institution and you don’t have to spend any money to receive it, you should expect to receive a 1099-INT tax form in the mail or in your bank’s online portal. Make sure you check both just in case your bank sends it one way and not the other. Note that this is the same form banks send you to report interest you’ve earned in a checking account or high-yield savings account.

Using rewards to pay for business expenses

For the most part, paying business expenses with a credit card isn’t much different than if you had paid any other way, such as with a check or cash. However, some nuances come into play when you use credit card rewards to cover business purchases.

The main thing to note is that you cannot deduct business-related purchases as a business expense for tax purposes if you pay for them with credit card rewards. If, for example, you used miles you earned with a credit card to pay for an $800 flight to a business meeting, you couldn’t deduct the cost of that flight as a business expense on your taxes since you didn’t pay money for it.

This is true whether you pay for an expense entirely with rewards or only partly with rewards. In the case of an $800 business flight where you covered $500 of the cost with rewards and paid the $300 difference in cash, you could only deduct the amount you paid out of pocket ($300) as a business expense.

When to use miles or points for business travel

If you’re using a business credit card specifically, you should only be charging business-related purchases to your card. However, since your credit card rewards aren’t taxable, you can use them on either business travel or personal travel.

If you earn enough airline miles to cover a flight entirely with miles or to pay for several nights at a hotel, then it could be beneficial to redeem those points for a business stay, especially if you find yourself traveling for business often. There’s a lot of value in redeeming your points for business travel.

When to use miles or points for personal travel

There is also a good argument for using points and miles for personal travel only. With this strategy, you benefit from deducting business expenses as they occur, and you get to save your rewards for fun instead of work. If you’re using a personal credit card for both business and personal spending, you’ll just have to make sure you keep track of what you’re writing off as a business expense and what was used for personal reasons.

The bottom line

Your business credit card rewards are not taxable, but there can still be tax implications depending on how you use them. If you pay for business expenses with rewards points or miles, you won’t be able to deduct those expenses as business purchases since you didn’t technically pay for them.

One way for small business owners to have their cake and eat it, too, is to pay for business expenses on their card to earn rewards, and then use the rewards for personal travel and spending. That way, you can still claim tax deductions on these business expenses. However you choose to redeem your credit card rewards, you can rest easy knowing that you won’t be taxed for earning them.