Posted by Chuck on March 27, 2017

Published on March 27th, 2017 | by Chuck


My Thoughts on Taxes for Miles, Points, and Cash Back

Are miles, points, MS, and reselling taxable? The question comes up time and again, and I thought to start a discussion about it here.

This post is for discussion purposes only. Let us know your own thoughts in the comments below. Please consult your lawyer or tax advisor before making tax decisions.

Let’s start with a few introductions, then we’ll go through various scenarios that come up.


If you resell merchandise for a profit, that’s obviously a business, and you’ll owe taxes like any other business. Once you earn more than $400the law requires you to pay taxes as a business.  (Amounts less than that might be subject to personal income taxes but not business taxes.)

Reselling gift cards should be the same.

Promotional Rewards

An important prefatory note is that compensation received from a business are taxable. While gifts you receive from a friend are typically not taxable (without getting into a Gift Tax issue), incentives from companies are viewed differently. It’s not a gift.

As an example, banks and shopping portals issue Form 1099-Misc to those who earn $600+ in cash referral bonuses.

Miles and Points versus Cash Back

In 2002, the IRS provided a guideline (pdf) differentiating cash rewards from miles/points. Here is their announcement:

Consistent with prior practice, the IRS will not assert that any taxpayer has understated his federal tax liability by reason of the receipt or personal use of frequent flyer miles or other in-kind promotional benefits attributable to the taxpayer’s business or official travel. Any future guidance on the taxability of these benefits will be applied prospectively. This relief does not apply to travel or other promotional benefits that are converted to cash, to compensation that is paid in the form of travel or other promotional benefits, or in other circumstances where these benefits are used for tax avoidance purposes.

So long as you aren’t using the miles as a way of avoiding taxation (e.g. getting paid in miles instead of cash), the IRS tells us that miles and points are not taxable due to their uncertain value. However, anything converted into cash would be taxable.

The IRS is apparently addressing the case of someone who gets miles and points from hotel stays and flights taken during business-paid travel and then uses up the miles for personal travel.

The same logic should apply to miles earned as a bonus. For example, if you earn miles from business purchases using an online shopping portal, it won’t be taxable even if the miles are used up on personal travel. And if you get 20,000 miles for a hair loss consultation, you wouldn’t have to worry about taxes.

Gray Areas

There are still some gray areas:

  • Points which do have a cash value, such as Ultimate Rewards, which can be cashed out at one cent per point. If you do take the cash, it presumably becomes a cash back card. But what if you use the points for travel? Is there still a 1% cash value there since you could have cashed it out at that rate?
    We should add that even Membership Rewards, ThankYou points, and Southwest points arguably have a cash value since they can be redeemed for merchant gift cards (like Amazon or Best Buy) and those are typically considered like cash.
  • Travel credits with points like Barclay Arrival or Capital One Venture can only be redeemed for travel. There might be an argument that since there if there is no cash value, it’s similar to the IRS guideline on miles and points and won’t be taxable. (We should note that part of the redemption might still be taxable since in the case of the Arrival, for example, you can cash out at .5 cents per point.)

Bank Bonuses

All bank bonuses are considered income and are taxable. Usually, the bank will file a Form 1099-INT to document the income, although they’ll occasionally send a Form 1099-Misc instead.

Banks are required to send a Form 1099-INT for amounts of $10+ and Form 1099-Misc for amounts of $600+. Though not required, some banks will send these forms for lower amounts as well. 

You might bump into a bank which does not issue a Form 1099 at all. In one reader’s experience, banks like Citi and PNC have not issued any Form 1099 for cash bank bonuses. They probably consider the income to be Miscellaneous income – not Interest income – and subject to the $600 reporting threshold. Since most bank bonuses are less than $600, those don’t get a 1099.

However, the majority of banks report file this as interest income with a Form 1099-INT and must report cash bank bonuses of as little as $10. Even banks who consider it subject to Form 1099-Misc might report amounts less than $600. I once got a 1099-Misc for a bank bonus of $125.

In any case, we are legally supposed to self-report such income and pay taxes on it.

Citi’s Stance

It was news in 20102 when Citi sent out Form 1099-Misc for those who received 25,000 American Airline miles for opening up a checking account. Incredibly, they valued the miles at 2.5 cents per point, or $625 for the 25,000 mile bonus.

It’s not clear why Citi sent out those forms after the IRS had already made clear years earlier aren’t taxable. They probably considered a bonus as being different than the IRS scenario of employee travel rewards. In any case, the practice of sending 1099s for miles appears to have stopped, possibly as a result of the lawsuits Citi faced.

While Citi no longer sends out 1099s for miles earned as a bank bonus, they still apparently send out 1099s for ThankYou points earned as a bank bonus, in a very specific situation: if you get $600+ value out of the ThankYou points in a single calendar year, you’ll get a 1099.

If you get a 50,000 point bank bonus and redeem it for $500 in gift cards, you won’t get a 1099. But if you use it for travel at a rate of 1.25 cent-per-point (something possible for Citi Prestige or Premier cardholders), you’ll get a 1099 since you got a $625 cash value from the points. It seems, that as long as you don’t get $600 of redemption value in a calendar year, they won’t send a 1099.

So Citi differentiates between miles and flexible points which are redeemed for a specific value.

This is all with regards to bank bonuses, not credit card bonuses since all those have spend thresholds, and any cash value from the bonus is considered a rebate on the spend.


As noted above, banks and other businesses regularly send out 1099s for referral bonuses. They typically only send at the $600 threshold, though we are supposed to self-report amounts less than that. Meaning that technically if you get a $5 shopping portal referral bonus, it would be taxable.

This does not mean that the income is necessarily considered a business, but it’s at least taxable like other personal passive streams of income.

Cash Back from Purchases

For personal purchases, the cash back is not taxable since it’s considered a rebate on the purchase cost. For example, if you buy $100 pair of shoes and got $2 cash back from the credit card, it’s like you paid $98 for the shoes and there’s no reason to pay taxes on that $2 received.

For business purchases, it’s usually assumed that the card cash back reduces the cost of the item, no different than any other rebate (pdf, page 29). On a practical level, this means if you get $100 cash back from your credit card, it is subject to tax like any other business profit, both personal income tax and any business taxes there might be.

[I’d have made an argument that the cash back is not a rebate since it comes from a separate company; rather, the rewards will be considered miscellaneous personal income, similar to cash referral bonuses, and will not be taxed as business income, only personal income (which will save ~15% tax, in many of cases). However, everyone seems to assume it’s a rebate, and future discussion in this article will assume that way as well.]

Some feel that if you use a personal credit card for your business purchases and reimburse yourself, it negates the tax issue. Others, however, aren’t happy with this approach when it’s done purposely to avoid taxation, something critically singled out in the above-mentioned IRS guideline. Also, the IRS guideline specifically mentions that any benefit converted into cash would be taxable, and cash itself shouldn’t be less than that.

Miles from Purchases

Miles or points earned from purchases (e.g. AA, SPG, Hilton, etc.) which are subsequently redeemed for personal use would seemingly be exempt from taxes due to the above-mentioned IRS ruling.

Therefore, if you are worried about your tax liability for business purchases, consider using a points or miles card instead of a cash back card.

Credit Card Signup Bonus

If you get a cash signup bonus on a credit card (e.g. spend $500 and get $100 back), the bonus can be considered a rebate on the $500 in good purchased and thus non-taxable. This would be true even if the cash signup bonus in question is a business credit card. (Banks don’t like when you use a business card for personal spend, but if you do, the bonus wouldn’t be taxable.)

For this reason banks don’t issue a Form 1099 for cash signup bonuses on credit cards like they do for bank bonuses since the bonus is considered a rebate on the purchase.

What if you spend the $500 to buy things for your business? The signup bonus might reduce the cost of the purchase and bring down your cost basis/expense to just $400 instead of $500. Effectively, this would mean the signup bonus is taxable like other business income.

If you make $100 in personal purchases and $400 in business purchases, it can be argued that the $100 bonus offsets the personal purchases and is thus non-taxable.

Manufactured Spending (MS)

If you MS for points or miles, it should be included in the IRS guideline, above, exempting miles and points due to their vague valuation.

But what if you MS cash back, e.g. you buy a $500 VGC at 5% back on an OBC card? Even if you consider the 5% as a rebate on the purchase price there’s still a profit here, and the regular logic exempting cash back on purchases from tax does not apply.

I’ve heard 3 schools of thought:

  1.  It’s not a business since no goods or services were provided. It’s more like other passive income (e.g. real estate, stocks, flipping currencies for a profit, buying bitcoin and selling at a profit, etc.) and taxable at your personal income bracket, but there isn’t any business tax liability.
  2. Anything done repetitively with the goal of profit is a business. It’s taxable like a business.
  3. No tax at all (yay!).

I don’t fully understand option 3, but I know many people subscribe to that, haha.

Store Credit (e.g. eBay Bucks)

Another interesting question is how to treat store credits like eBay Bucks certificates or Best Buy Rewards certificates or Kohl’s Cash certificates.

  • If you earned the store credit from personal purchases and redeemed it to buy personal items, it’s probably not taxable.
  • If you earned the store credit from business spend and redeemed it on a business purchase, the rewards might act as a discount on the second purchase, effectively making them taxable like business income.
  • What if you earned the store credit from business spend and then redeemed it on a personal item? It might still be technically taxable since it’s similar to an eBay gift card. Broad-use gift cards are usually considered like cash.
  • What if you earned the store credit from personal spend and then redeemed it on a business item? An argument can be made that the store credit was my personal stash of cash-equivalent which I used on the business, as if I sent money over from my personal account to my business account, and thus not taxable. The business ‘buys’ the certificate from the personal, and you can ascribe the full purchase price of the item in your business records despite the fact that you didn’t pay anything for it.

Amex Offers

Amex Offers used for personal purchases would be considered a discount and non-taxable.

If used for a business, it would usually be considered a discount on the purchase price and effectively taxable. Sometimes, there are Amex Offers which Amex pays for themselves, like $10 off $10 during Small Business Saturday. Those might be considered differently since they aren’t a rebate from the merchant.

Shopping Portals

Lastly, let’s talk about shopping portals. Mileage portals should fall under the IRS guideline, above, and not have a tax issue, even if redeemed for personal travel.

As for cash back portals: if you make a personal purchase through a shopping portal, it should be considered a rebate on the purchase and non-taxable. On a business purchase it could be considered a rebate on the purchase and effectively taxable like business income.

If you get a random portal bonus, like getting $5 for using the portal three times, it’s probably taxable at your personal income rate, similar to other forms of passive income and similar to a referral bonuses.

Final Thoughts

In conclusion, let’s acknowledge that most people probably don’t report these kinds of profits (with the exception of a real reselling business). I like going through rules and dissecting them, and hopefully there is some useful information in this post.

We should note that this issue doesn’t only come up for churners. There are, undoubtedly, thousands of oblivious people who earn $5 or $10 from referring someone to a portal or a business and it won’t ever dawn on most to report it on their tax return, despite the fact that referral income is clearly something banks and businesses consider taxable.

Let us know your own thoughts in the comments. Feel free to disagree with anything written in this post, just try to keep it civil.

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Great read. Are there any DPs where anyone has encountered a run with The Man for not reporting when no tax forms received?

I have never reported bank interest earned when I received a form because it was such a small amount (<$20). However, these bank bonuses definitely represent a much higher amount of interest than before I got started in this hobby.


Wait, you got a 1099, which was also sent to the Tax Man, didn’t include it in your tax return, and never heart back? I always thought that triggers an automatic letter from the Man. Only thing I can think off is that it wouldn’t have made a difference on your return, since the tax tables use income ranges to determine what one owes. Silly me even includes amounts for $0.01.


i don’t bother including copies of my 1099s with my return, but i do list all my sources of interest on the schedule B form, so they can match them up. I figure: why bother? The IRS has the form already, they don’t need me sending it in, too.

i used to, though. i forget who told me it wasn’t necessary. Mabye it was the time i e-filed, and i wasn’t required to upload all my 1099’s and 1098’s and whatnot, but i was required to upload my W2.


You do not need to attach 1099s to your return but you do need to report any income shown on them. If the value is wrong, report the full amount shown and correct on another line.


What about the case where you redeem Bank of America credit card rewards into a Bank of America bank account (maybe with Preferred Rewards) and you received an increased amount above the credit card reward. For example you redeem $200 from a Cash Rewards card, but since you have Preferred Rewards Plat Hons, so you get a 75% boost and you actually receive $350=$200*1.75=$200+$150. So what, if any, does the IRS deem to be taxable? The full $350? The $150 boost? Or is $0 taxable? I keep seeing this asked a lot on some sites, but no-one seems sure of the answer.

Did anyone get a 1099 (INT or MISC) from Bank of America for this specific type of credit card rewards plus relationship bonus? (There’s also a question of if a $600 (or $10) treshhold comes into it, and if such a treshhold is per card or per individual.)


I received a fair amount of BOA Rewards including:
-~$500 cashed in rewards cards including cashback and travel statement credits… Including the 10% reward for having an account with them.
~$110 or so in their deals rewards for making certain vendor purchases.
~$240 in Better Balance Reward payouts throughout the year

I did not receive a 1099 and I only reported my 0.01% interest from my BOA Bank accounts. YMMV


There was a time when my husband and I had 7 bbr cards between the 2 of us, bonus going into the same bofa savings.

No 1099 that year.


My Philosophy is rather simple.

Any interest is taxable, thus I report any income from bank accounts. Yes, even my $0.15 in bank of america interest last year I reported.
Anything else… unless I get a tax form I don’t consider it necessary to report.


mines even more simple. Dont report anything to the IRS they dont know about.


So much wiser than the strategy reported above yours


Since the IRS encourages rounding to the nearest dollar, and many tax programs won’t even let you put in cents, reporting 15 cents is a waste of time.

Now if your goal is to hide something else shady on your return, so that under audit you can point to your Schedule B and say Hey – look! I even reported 15 cents from Bank of America. How can you possibly doubt my deduction? Well, then more power to you. 🙂


I know why you mean as far as rounding, but Turbo Tax doesn’t seem to have an issue with reporting it?

Either way, I certainly have nothing to hide since I don’t even have anything to get me past the standard deduction buffer.


Some programs let you enter it, but actually round off per IRS guidance.


I disagree with your statement in the cash signup bonus section “If you make $100 in personal purchases and $400 in business purchases, it can be argued that the $100 bonus offsets the personal purchases and is thus non-taxable.”

In my view, the $100 bonus is applied pro-rata to the $500 in spend to meet the signup bonus. Hence, your $400 in business purchases has a cost basis of $320, and your personal purchases were $80.

If we want to muddy the waters even more, I’m pretty sure a good lawyer could argue that any rebates for a business expense received as a gift card should not be discounted from the cost basis of said expense at face value. We all know that gift cards can be bought and sold below face value, and hence, the cost basis of the expense should be discounted at the fair market value of the gift card.
What exactly is the fair market value? I’m not sure exactly because of the bid/ask spread on gift cards. It’d have to be somewhere in between but I’m not sure where.


Good topic, thanks.
On the MS front, and no doubt many of your readers are far more experienced with higher volumes, what about if one is actively engaged in gift-card reselling…. not with the intent to make a profit (though some do), but with the intent to meet minimum spending thresholds? If you’re really into this, with certain gc resale outlets, like raise, they tell you when you sign up (for bulk seller status) that they are required to issue a 1099 at end of year if your total sales volume passes 10k. (if memory serves — not so much a problem at the federal level if you’ve kept a good spread sheet/records during the year…. and can verify your net “profit” as minimal.)

Yet for those of us who live in states like Virginia, where small businesses get hit with a tax on gross receipts…. (regardless of profit) and this could be painful. (or so I wake up in middle of the night wondering) Any thoughts or experience on this? (the grt on gc/ms activities)


How about if you redeem the cashback earned as statement balance on your chase freedom card? Will that count as taxable income, as i have over 2k cashback on the card. Dont have any other chase cards since i am over 24/5.


Hi Doctor,

Regarding the MS tax rules, it is indeed a gray area. You can argue both ways and either way could work out legitimately. I believe the difference between their tax treatment is intent

1st method – No goods or services provided; definitely arguable and is legitimate “Other Income” on a 1040. This would probably work best for someone who does this as an on-and-off hobby.

2nd method – As people have mentioned, a repetitive activity with the goal of profit is considered a business taxed at self-employment rates unless the activity was within an S or C-corporation. One guy on reddit who spends 30 hours/month to MS 150k a month would fall into this category.

My recommendation to anyone who is considering reporting income from MS is to crunch out all the numbers first and see which tax treatment method will result in a lesser tax liability. For example, if you decide to treat MS as a self-employed business activity, you can deduct the cost of doing business, so anything from pumping gas to travel between destinations to gift card purchase/activation costs would be fair game. You could arguably take a proportion of your utilities and internet bill as a business cost based on the percentage of time you spend MS-ing. Basically, any expense incurred in the act of MS-ing is a fair expense.


This comment near the top of the post is technically incorrect:

” Once you earn more than $400, the law requires you to pay taxes as a business.”

The tax (as noted in your link) is actually self employment (SE) tax, not necessarily a “business” tax. Also, due to the way SE tax is calculated, you need to exceed $433 in actual self employment income before paying any SE tax.


Cash back from a CC or portal is a form of rebate. It is not taxable income. It reduces your cost basis if accounting for product cost (e.g. reselling) See IRS publication 525 under “cash rebate” (page 29 in the 2016 edition)


After focusing mainly on MS for CB last year, I set up a ‘sole proprietorship’ business to report the income. I figured it would be worthwhile to sacrifice some profit (actually a good chunk of it) in order to (a) keep my tax reporting above board and (b) allow me to apply for business credit cards.

The moderately interesting part is how the tax liability skews the reward profile towards putting that spend on ‘grey area’ options instead, such as Barclay Arrival or UR cards. Assuming you can convince yourself that travel reimbursement and/or UR pts aren’t taxable.

I’m still grappling with that issue regarding my approach in 2017.

Bob Newbie
Bob Newbie

Thank you, this was a fantastic write-up & confirms most of the research I’ve done on this topic(i’m a reseller)
In 2017 I’ve switched to using points/miles cards to save on taxes.
in 2016 though, I reported/paid taxes on all my credit card cash back, shopping portal cash, Ebay Bucks, etc.
The only thing I didn’t report was any credit card sign-up bonuses, I didn’t think those were taxable even for business purchases, I will have to look back through my research/links to see how I determined that.

Follow-up question/thought-
For Shopping Portal Cash Back, for business purchases, I’ve always paid taxes on the cash I’ve received from these websites, mainly because it’s being deposited directly into my PayPal or bank account. I know gift cards are generally considered a cash equivalent.
BUT, if I choose to redeem my shopping portal rewards for Amazon gift cards, etc. instead of cash & use them for personal purchases, then I don’t really see any possible way the IRS can track this or even know that these gift cards ever existed.
What are your thoughts on this?

Billy bob
Billy bob

Tax question… Who would be able to help answer? I’m an independent contractor. I can subtract business expenses from my income. If I use points to cover some of my business expenses, is there a way I can still subtract those expenses from my income for tax purposes? I earned the points from both personal spending and business spending (let’s say credit card spending). In my particular case, I’m using Amtrak points to get to my work site. Say I use 60k Amtrak points/yr to do this… That would have cost me $1740 cash. Or would this be “double dipping”.


This is really a question for your accountant / tax professional, but what is your cost basis in those points you’re using for business expenses? Since they were given to you for free (as a gift/bonus for other spending), your cost basis is 0, so your deduction would be 0.

On the other hand, if the “retail” price is $500 and you use points, you could have your company reimburse you the retail price, tax free to you. You can do this for years until the IRS audits you. Once they do, they’re probably going to agree with paragraph #1 above.

You can avoid this problem by always paying cash for business expenses and use points/miles for personal expenses. More for you and less for Uncle Sam.


I also don’t report anything if I don’t get a tax form.


The taxability of points/miles from GC selling is what has me all confused. They don’t have $0 value but the value is so uncertain. I got an $11k ticket on SQ Suites in part from GC selling. That being said, I would have never bought that flight at that price (maybe $600 sure, but not $11k). How you value miles/points is very dependent on who you talk to I guess – but reporting it (or even whether you need to report it) as business revenue/income is confusing as hell.


One quick note on MS.. The IRS is getting smarter with data analytics. I spoke with an IRS auditor who detailed their strategy of matching the spend on a business credit card with the EIN reported on the tax return. In this case, it was a tip where someone tipped off the IRS to the taxpayer fraudulently under reporting income on their tax return. They were able to pull the credit card data and prove income was underreported. Obviously, there was a lot of organic spend and the taxpayer was just didn’t want to report all the income. It might not be too far off from them running this sort of analytic on the general public though…only if they can get their hands on the data from the credit card companies.

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