Are Cash Back Rewards Considered Taxable Income?
Cash back rewards are great. But can they leave you in a tricky situation come tax time? You'll be happy to know the answer is for the most part, no! The IRS considers cash back rewards a discount which is not considered taxable income.
Disclaimer: Please do not misconstrue this blog post as any kind of advice on taxes. I am not an accountant nor do I play one on Facebook 🙂 You should seek out qualified professional help when it comes to taxes and treat this post for informational purposes only.
Cash Back is Considered a Discount
If you already made a purchase and the vendor gives you money back later on, than the vendor has effectively reduced the price of what you paid. That is exactly the same as a discount and no income was earned in this particular case.
Where It Starts to Get Fuzzy
I included a video in this post that shows that for most of us, getting a cash back reward is not going to raise any red flags with the IRS. However, there are situations for business owners who take a tax deduction for a business expense but don't account for any rebates or cash back rewards for the item being deducted. According to the video, this could get the business owner into a tricky tax situation. Take a look here (don't worry it's well done and not overly long):
"We Will Give You $250 To Open An Account at Our Bank"
You see these kinds of offers all the time, either that you'll get a toaster or some similar item. What does the IRS consider in this scenario? Actually, this is where you can get into some trouble but it really depends on how big the gift was and how many of them you have taken advantage of in any given tax year.
But remember, the bank has likely claimed the gift as a deduction so if the IRS decides to check out the other end of the transaction and finds that you are the proud receiver of that gift and they don't see it appear as claimed income on your return, it could leave them wondering what other transactions you may be hiding. I think the IRS has to weigh the cost of an audit with how likely they have a case against you. Still, it doesn't mean they won't look into it. And if they do look into it they may actually find other items that they feel you are not being upfront about.
A More Subtle Example...
It has been shown that cash back is considered a discount and as such not taxable income. But there are programs that exist known as GPT which stands for Get Paid To. These programs award points to people to perform all kinds of tasks online. They can get paid to click banners, read emails, view videos, play games, as well as other activities where they are rewarded for those actions. These are in all likelihood taxable transactions.
Now don't get me wrong. These programs don't pay much at all. You will have to perform many activities (which usually mean viewing tons of advertising) for you to get anything worthwhile. Most of these GPT programs pay you in points and then you redeem those points with either cash or gift cards, etc. It really takes a long time and many hours spent to generate even the smallest amount of points.
But here's the rub. There are many programs out there and most of them will pay you when you refer people. Even further, many of these programs will pay you on the activities of your referrals. Having one or two referrals isn't going to put a dent in the points. But have several hundred or even thousands could generate substantial points which will translate into some decent coinage to your account. And that coinage is definately going to draw the attention of the taxman.
Be Vigilant When Participating in Rewards Programs
I do believe with respect to these GPT programs that it would take the IRS more effort than it's worth to track down thousands of small transactions that end up giving the participants a $3 Amazon gift card. But it's not beyond the realm of reason for the IRS to crack down on transactions of people that are making some decent money in these types of programs. If you are one who is in that position, taking my advice about seeking financial help from a qualified professional is quite prudent.
Where To Find The GPT and Cash Back Programs
If you decide you want to check out these programs, I have put together a list of some of the top programs that you can make a bit of money with. Again, if you want to make larger amounts you will need to join several of them and get people to sign up using your referral link. This can really mushroom into something big (and hence why I wanted to cover the whole tax issue in this post). But if you are willing to declare your earnings when you get to that point, you may want to consider taking advantage of these as there are people who make some pretty decent cash by doing it right. Use this link for a list of the programs that I put together for you.
