If I redeem my points and miles, do I have to claim it on my taxes?

“Can I redeem my points? is not an uncommon question. We recently looked at what the options are for redeeming points and whether it’s worth doing so in terms of the value you’ll get.

Any discussion of cashing in points leads to a follow-up question: are there any tax implications to doing so? We have consulted with a tax specialist to discuss the tax implications, if any, for individuals who decide to redeem their points.

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Tax implications for redeeming points and miles

Let’s say you spend money on your credit card in bonus categories where you earn extra points or you earn a welcome bonus on a credit card. We already know that banks sometimes issue 1099s for referral bonuses, so what about credit card rewards? Are they taxable?

“There are no tax implications for cashing in your frequent flyer mile rewards under normal circumstances,” according to Chad Mangum, a registered tax agent and owner of Tax preparation services in Salt Lake City, Utah. He said he had looked into this topic during his research for his master’s degree in taxation and on behalf of clients during previous work with several tax lawyers.

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“The IRS has long considered rewards to be considered a ‘discount’ for goods/services you purchase,” he said. Miles and points earned as rewards by spending money on your credit cards are not considered cash or cash equivalents, except in extreme situations where cash equivalents are involved.

“A tax court case shows a situation where taxpayers went to extreme lengths to rack up rewards that resulted in over $300,000 in credits,” Mangum added. “The IRS only prevailed in this case because taxpayers bought gift cards to buy money orders to buy more gift cards, essentially ‘gaming’ the credit card rewards system. at the time.

“This was a very unique situation where the court’s finding indicated that it excluded IRS credit card rewards in its decision (see: Konstantin Anikeev, TC Memo 2021-23).”

However, Mangum says simply cashing in your points isn’t the same thing. He also points out that discussing the tax implications and discussing whether or not it’s a “good idea” to cash in your points and miles are two separate discussions.

Related: Why Points and Miles Are a Bad Long-Term Investment

Of course, there are times when income points or miles will have tax implications, especially for those who open a Bask Mileage savings account to earn US AAdvantage miles. The rewards you would earn are considered interest income and you will receive a Form 1099 with a taxable value of 0.42 cents per mile.

At the end of the line

The good news is that the IRS doesn’t usually consider credit card rewards as income. From our understanding – and after consulting an IRS-accredited tax professional – most people who cash in their credit card rewards shouldn’t have to claim it on their taxes.

However, if you have any questions about the tax reporting requirements for your particular situation regarding points and miles, redeeming your points, or anything else, you should definitely speak to your tax preparer or a tax lawyer for advice.

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