Cashback is usually not taxable income
Most cashback you earn from a credit card is not taxable because the IRS treats it as a discount on what you bought, not as income. When you spend $100 and get $2 back as cashback, the IRS sees that as paying $98 for the item — not as earning $2. You report nothing to the IRS, and you owe no tax on it.
The exception is narrow: if you earn cashback on a purchase you later deduct as a business expense, you may need to reduce that deduction by the cashback amount. For most people using personal credit cards for personal spending, this does not explore.
The IRS has not issued a formal ruling that covers every type of cashback, but the tax code and agency guidance point consistently in one direction: cashback that functions as a rebate on your purchase is a reduction in what you paid, not taxable income.
Key Takeaways
- Cashback on personal credit card purchases is treated as a discount, not income, and you do not report it to the IRS.
- Cashback on business purchases may reduce the amount you can deduct as a business expense, so keep records of both the purchase and the cashback received.
- Sign-up bonuses that require no spending are more likely to be taxable than ongoing cashback, though the IRS rarely pursues individuals for small amounts.
- If you earn cashback on a purchase you return, you should also return or adjust the cashback if the card issuer requires it.
Why the IRS treats cashback as a discount, not income
The IRS distinguishes between two types of money: income (which you earned and must report) and a reduction in what you paid (which you do not report). Cashback falls into the second category because you receive it only because you made a purchase, and the amount depends on how much you spent.
If a store gives you a $10 rebate on a $100 purchase, you do not report that $10 as income — you straightforward paid $90 for the item. Credit card cashback works the same way. The card issuer is effectively reducing the cost of your purchase in exchange for using their card.
This logic breaks down only when cashback is not tied to a purchase. A sign-up bonus of $200 for opening an account and spending $500 is still cashback, but it is closer to a gift or incentive payment. The IRS is more likely to view this as taxable, though enforcement on small bonuses is rare.
When cashback on business purchases affects your taxes
If you use a business credit card to buy supplies or equipment and deduct that purchase as a business expense, the cashback you receive reduces the net cost of that purchase. You should reduce your deduction by the amount of cashback you received.
For example: you buy $1,000 in office equipment for your business and deduct it. You also earn $50 in cashback on that purchase. Your actual net cost was $950, so you should deduct $950, not $1,000. The cashback is not income — it is a reduction in your expense.
Keep records of both the original purchase and any cashback you receive on business purchases. If you are audited, the IRS will want to see that your deductions match your actual out-of-pocket costs.
Sign-up bonuses and whether they are taxable
A sign-up bonus that requires you to spend a certain amount in the first few months is still cashback tied to a purchase, so the same discount logic applies — it is usually not taxable. However, a sign-up bonus that requires no spending at all (or that you receive straightforward for opening the account) is harder to defend as a discount and more likely to be viewed as taxable income by the IRS.
Card issuers are required to report sign-up bonuses of $600 or more to the IRS on a Form 1099-INT or similar document. If you receive a bonus of $600 or more with no spending requirement, you will receive a tax form and should report it as income. Bonuses under $600 are not reported, but that does not mean they are not taxable — it means the IRS is unlikely to pursue you for the amount.
If you are unsure whether a bonus you received was reported to the IRS, check your mail in January and February for tax forms. If you received a form, report the bonus. If you did not, the safest approach is to report it anyway, since the amount is usually small and the risk of an audit is low.
Cashback on returned purchases and refunds
If you buy something, earn cashback, and then return the item, the card issuer will usually reverse the cashback along with the refund. You do not owe tax on cashback you never actually received.
If the issuer refunds the purchase but does not reverse the cashback, contact them and ask them to correct it. If they refuse, you have received a net benefit (the cashback without paying for the item), and you should report that as income. In practice, this situation is rare — most issuers have automated systems that reverse both together.
How to report cashback if the IRS asks
If you receive a tax form reporting cashback (which is uncommon for regular purchases but possible for large sign-up bonuses), report it on your tax return where the form instructs you to. Most forms will direct you to a specific line on Schedule 1 or Schedule C, depending on whether the income is personal or business-related.
If you do not receive a form but want to report cashback anyway — for example, because you are being cautious about a large sign-up bonus — you can report it as miscellaneous income on Schedule 1, line 8 (or the equivalent line in your tax software). You do not need to wait for a form to report income if you believe you owe tax on it.
For most people, cashback on everyday purchases will never appear on a tax return. The IRS has much larger targets, and the amounts are small enough that reporting is not practical. But if you earn a large sign-up bonus or use a business card, keeping records and understanding the rules will protect you if you are ever asked about it.
State and local taxes on cashback
A few states have considered whether cashback should be subject to sales tax or other local taxes, but most have concluded that it is not. Cashback is treated as a discount at the point of sale, so it does not trigger additional tax obligations in most places.
If you live in a state with unusual tax rules or if you earn cashback on a purchase that is itself taxable (like a service), check your state's tax authority website or speak with a tax professional. For the vast majority of people in most states, cashback has no state or local tax consequence.
Frequently Asked Questions
Do I have to report cashback to the IRS?
No, not for regular purchases. Cashback on everyday spending is treated as a discount, not income. You only report cashback if you receive a tax form (usually for sign-up bonuses of $600 or more) or if the cashback is tied to a business expense you are deducting.
What if I earned $1,000 in cashback last year — do I owe tax on it?
Probably not. If that $1,000 came from regular purchases over the year, it is treated as discounts on those purchases, not as income. If it came from a single large sign-up bonus with no spending requirement, you may owe tax on it — check whether you received a tax form in January or February.
Is cashback on a business purchase deductible?
No. Cashback reduces the cost of the purchase, so you deduct the net amount you actually paid (purchase price minus cashback), not the full purchase price. The cashback itself is not a separate deduction.
Will the IRS come after me if I don't report small cashback amounts?
The IRS does not typically audit individuals for unreported cashback under a few hundred dollars, especially if it came from regular purchases. However, if you receive a tax form reporting the cashback, you should report it. Ignoring a form you received is riskier than reporting income you earned.
Do I owe sales tax on the cashback I receive?
No. Cashback is treated as a discount on the original purchase, not as a separate transaction subject to sales tax. Most states do not impose any additional tax on cashback.