The IRS says most credit card rewards are not taxable because they are treated as a discount or rebate, not as income, according to IRS rules. This rule covers rewards earned from normal spending, including cash back, airline miles, and hotel points. Welcome bonuses that require cardholders to spend a certain amount before receiving the reward are also generally not taxable. However, there is an important exception called the “no spend” rule.
If a person gets a welcome bonus simply for opening a credit card and does not have to spend any money first, that reward can be considered taxable income. In such cases, the credit card company may send a 1099 form, and the reward must be reported as income when filing taxes. The IRS considers these rewards taxable whether they are received as cash back, gift cards, or points. Even if a taxpayer does not receive a 1099 form, they are still responsible for reporting taxable rewards under the “no spend” rule.
The second major exception involves referral bonuses. Referral bonuses are rewards earned when a cardholder recommends a credit card to friends or family and receives a benefit in return, as stated by The U.S. Sun report. The IRS generally treats these referral rewards as taxable income. Taxpayers who receive referral rewards may need to report them through a 1099 form. This rule applies even when referral rewards are given as airline miles, travel points, or cash rewards.
Tax rules for credit card rewards
Taxpayers are responsible for making sure taxable rewards are properly reported through Form 1099-MISC when the income exceeds $600. The report also noted that many Americans carefully plan how they will use their tax refunds, according to a new survey by Talker Research cited by The U.S. Sun. The survey of 2,000 U.S. taxpayers found that 79% expect to receive some form of tax refund this year. Around one-third of Americans start planning how to spend their refund as much as six months in advance.
More than half of respondents (52%) said their tax refund plays an important role in their overall budget. A large majority (77%) plan to use their refund for essential expenses, as per the Talker Research survey. The most common use for refunds is paying rent and bills (52%). Another 44% plan to spend refund money on groceries and other essential items. About 37% intend to use their refund to pay off credit card debt. Among people paying down credit card balances, 56% said they are specifically tackling debt built up during the holiday season.
Tax refund spending plans
Only 8% of respondents said they plan to spend their refund on luxury purchases. Among luxury purchases, 37% plan to buy new clothes. Another 28% plan to spend on entertainment. About 26% want to buy a new phone with their refund money. The survey, commissioned by TaxSlayer and conducted by Talker Research, found that the average taxpayer hopes to receive around $1,700 as a refund this year. About 22% expect a larger refund than last year.
Credit card tax payment fees
Meanwhile, 26% believe they will receive a smaller refund than they did last year. Another 51% expect their refund amount to stay roughly the same. Looking back at last year, 12% said they received a larger-than-expected refund. Meanwhile, 20% reported getting less money back than they had expected. People expecting a bigger refund this year said it may be because they had more money withheld from their paychecks, earned more income, or welcomed a new baby.
Those expecting a smaller refund pointed to reasons such as job loss, owing back taxes, children becoming adults, or higher tax rates. The report also highlighted that taxpayers can choose to pay their tax bill with a credit card to earn rewards, according to The U.S. Sun. However, third-party payment processors charge fees that can reduce or even eliminate the value of those rewards. Processing fees generally range from 1.87% to 2.35% of the tax payment amount. For example given in The U.S. Sun report, paying a $5,000 tax bill by credit card could add at least $93.50 in fees.
IRS tax deadline and refunds
Taxpayers should compare the value of the rewards they earn against the fees they pay before deciding to use a credit card. The deadline for filing 2025 taxes is April 15, while taxpayers in Maine and Massachusetts have until April 17. Americans who need more time can request a filing extension until October 15. To get an extension, taxpayers must submit Form 4868, the Application for Automatic Extension of Time To File U.S. Individual Income Tax Return.
The IRS says refunds are often issued within 21 days of filing, although errors can cause delays. Taxpayers who file paper returns may wait around a month or longer because the IRS processes millions of returns during tax season. As of January 31, the average tax refund was $1,928.
During the same period in 2024, the average refund was $1,395. The average direct-deposit refund for 2025 was even higher at $2,069. Taxpayers can track their refund using the IRS online tool called “Where’s My Refund?”. The tool usually works within 24 hours after e-filing and within about four weeks after filing a paper return, according to IRS information cited by The U.S. Sun.
