Are business credit card rewards taxable?

Are business credit card rewards taxable?

Credit card rewards are common and attractive. Nearly three in four Americans have a credit card that offers rewards, and two in three with a rewards card say they prefer to use it because of the points it earns.

Let’s consider how this might impact you and your business. Maybe you earned $1,500 in cash back last year. Now that tax season is approaching, you’re asking a simple but stressful question: Are credit card rewards taxable for a business, or can you enjoy them without worry?

The short answer is reassuring. Most business credit card rewards are not taxable. Still, the rules can get confusing fast, especially when sign-up bonuses, cashback programs, and different types of rewards come into play.

Mercury, a fintech for entrepreneurs, walks through what you need to know about business credit card rewards and taxes, so you can make clear, confident decisions about what counts as income and what does not.

Most rewards are not taxable for a business, but there are exceptions

Founders may spend more time thinking about building business credit or optimizing their spending strategy than decoding Internal Revenue Service (IRS) rules. This can make it easy to overlook how rewards affect tax treatment.

In most cases, the IRS does not treat rewards earned through spending as taxable income. When your card gives you miles, points, or cash back for purchases, the government considers those rewards a form of rebate. A rebate is treated as a discount on the purchase price, not as new income.

Still, founders often wonder if business credit card rewards are taxable if they come from a bonus or promotional offer. The answer depends on how you earn the reward.

If you receive something of value without needing to spend money to get it, you may have taxable income. This usually appears in the form of an account-opening bonus that requires no minimum spending, a referral reward, or a promotional gift. Understanding this distinction helps you avoid surprises and stay in compliance.

IRS guidance on credit card rewards

The IRS does not publish a standalone rulebook specifically outlining whether every business credit card reward is taxable income, but its broader guidance on rebates and income is clear.

Rewards tied directly to spending generally fall into the category of purchase price adjustments. This means they reduce the cost of your purchases rather than add to your taxable income. For example, a cash rebate you receive from a dealer or manufacturer isn’t income, but you must reduce your basis (the figure you use to calculate gain or loss) by the amount of the rebate, according to the IRS.

Whether you earn cash back or travel rewards, the way you earn them determines the tax treatment. If a qualifying purchase triggers a reward, it is considered a rebate.

• Cash back earned at a flat rate on business spend
• Bonus points for spending in certain categories
• Airline miles that accumulate based on spending

None of these are treated as taxable income. The earning method, not the redemption, determines taxability.

Some sign-up bonuses require you to spend a certain amount within a set period. These follow the same rebate logic and are not taxable. However, when a card gives you a bonus simply for opening an account or enrolling, the IRS can treat that bonus as income because it was not tied to a purchase.

This is where founders can get tripped up, especially when they did not make a qualifying purchase. A gift card, cash deposit, or promotional statement credit you receive without meeting a spend requirement may be taxable and should be tracked separately.

What about business credit cards specifically?

Business credit card rewards are subject to the same federal tax rules as personal credit card rewards. There is no separate IRS category that treats your business rewards differently. Still, the impact may vary depending on your business structure.

For most C-corporations, rebates simply reduce their business expenses. For pass-through entities such as sole proprietorships, partnerships, or S corporations, rewards reduce the deductible expense on your Schedule C or other relevant return. Either way, the tax outcome is consistent.

If the reward itself is non-taxable, using it for personal travel or company purchases does not change its status. That said, internal governance matters. Even when the IRS does not impose tax, personal use may require documentation or internal approval.

Founders with finance teams often seek clearer guidance on how to account for business credit card rewards within their bookkeeping systems, and simple categorization goes a long way.

Can I use business credit card rewards for personal use?

Founders often ask this question, curious whether they can use business credit card rewards for personal travel or purchases. From the IRS perspective, personal use of a non-taxable reward does not create a tax obligation. What matters is how the reward was earned.

Where things can get complicated is inside your business. For companies with multiple cardholders, using rewards personally may trigger governance or compensation rules.

Real-world examples

Examples help bring the rules into focus with straightforward guidance. Here are three common scenarios founders experience.

If you earned $500 in cash back from day-to-day business spending, this reward is not taxable. It is treated as a rebate that effectively reduces your business expenses. Nothing needs to be reported as income to the IRS.

If you received a $300 gift card simply for opening a business credit card, this may be taxable. Since you did not have to spend anything to earn it, the reward counts as income.

Redeeming miles for a personal trip is not taxable because the miles themselves were earned as rebates on spending. Still, questions often arise about whether you can use business credit card rewards for personal use without running into problems. The tax answer is generally yes, but your internal policies may set boundaries.

How to track and report taxable rewards (if applicable)

Most founders will not need to track much, since most rewards are not taxable. Still, good bookkeeping helps you stay organized and avoid mistakes during tax season.

Use your accounting system to categorize rewards that could be taxable. These include referral bonuses, promotional credits not tied to spending, or any gift received for opening an account without meeting a spending threshold.

If your company has an in-house finance team, define how rewards are earned, tracked, and used. This reduces confusion, especially when multiple team members use corporate cards.

A more straightforward path to using your business rewards wisely

Most business credit card rewards are not taxable. If the reward is tied to spending, the IRS treats it as a rebate. However, you might have to report the reward if you earn it without spending. With a bit of clarity and simple tracking, founders can enjoy their rewards programs with confidence.

This story was produced by Mercury and reviewed and distributed by Stacker.