A business credit card can be an incredibly valuable tool, and that’s true whether you choose one that offers rewards or not. For example, a dedicated business card can help keep personal and business expenses separate, making your life much easier when it comes to bookkeeping and taxes. Further, business credit cards can come with important benefits you’ll truly use, ranging from consumer protections to cash back and travel rewards for each dollar you spend.
Still, it’s easy to get confused about the rewards you earn with a business credit card and how they’re treated by the Internal Revenue Service (IRS). If you’re wondering whether business credit card rewards are taxable, the simple answer is no. Your business credit card rewards are not considered income and, therefore, are not taxable.
Unlike money earned through traditional work, credit card rewards are considered rebates on items you purchased with a credit card.
If you purchase a product and then submit the manufacturers’ rebate form to receive a check, that money is also not taxable. Similarly, if you use an app such as Ibotta to earn cash rebates on your purchases, this is also not taxable income.
So, rest easy. Whether you receive your credit card rewards in the form of cash back, a statement credit, a gift card or a travel credit, you won’t pay taxes on those rewards.
Are business credit card rewards taxable?
It’s nice to know cash back earned with a rewards credit card for business won’t be taxed if you earned those rewards based on a percentage of your spending. Fortunately, this general rule also applies to other types of rewards you earn with a business credit card as a rebate, including hotel points and airline miles.
According to the IRS, there are a number of issues related to the benefits from business credit cards, such as how and when income is valued and how to identify “personal use benefits attributable to business (or official) expenditures versus those attributable to personal expenditures,” for which there are no official guidelines. As a result, the IRS “has not pursued a tax enforcement program with respect to promotional benefits such as frequent flyer miles.”
The difference between awards and rewards
While credit card rewards earned with a business credit card are not considered taxable income, there are instances where other types of rewards require you to pay taxes.
A common example includes bank bonuses you earn for opening a new checking or savings account. These bonuses are treated differently because you are not required to spend money to earn them, thus they are not considered a rebate.
And, for the most part, that’s the main difference between rewards that are taxable and those that are not. Credit cards require you to spend money to earn cash back or travel rewards, which are then returned to you as a rebate on your spending. If you’re earning any kind of bonus from a financial institution and you don’t have to spend any money to receive it, on the other hand, you should expect to receive a 1099-INT tax form in the mail. Note: This is the same form banks send you to report interest you’ve earned in a checking account or high-yield savings account.
How to treat business expenses purchased with your rewards credit card
For the most part, paying business expenses with a credit card isn’t any different than if you had paid any other way, such as with a check or cash. However, there are some nuances that come into play when you use credit card rewards to cover some of your business-related purchases.
Specifically, you cannot deduct business-related purchases as a business expense if you pay for them with credit card rewards. If, for example, you used miles you earned with a credit card to pay for an $800 flight to a business meeting, you couldn’t deduct the cost of that flight as a business expense on your taxes since you didn’t actually pay for it.
Also note that this is true whether you pay for an expense entirely with rewards or just partly with rewards. In the case of an $800 business flight where you covered $400 of the cost with rewards and paid the $400 difference in cash, you could only deduct the amount you actually paid ($400) as a business expense.
Considering how valuable travel rewards can be, this is actually a fairly common occurrence. It’s not too difficult to earn enough airline miles to cover a flight entirely with miles or to pay for several nights at a top-tier hotel or resort for a business stay. There’s a lot of value in redeeming your rewards for personal or business travel, however, so redeeming your points this way can still be a good deal.
That said, there is also a good argument to be made for using points and miles for personal travel only. With this strategy, you get the benefit of being able to deduct business expenses as they actually occur, and you get to save your rewards for fun instead of work.
How to best use your business credit card rewards
There’s no right or wrong way to redeem rewards you earn with a business credit card, and they’re truly yours to spend. And, as we pointed out already, you can use your rewards for business purposes if you want, but you can use our rewards for your own benefit as well.
Either way, the following tips can help you make the most of your business-related credit card rewards.
Sign up for a business credit card that earns flexible travel rewards
Once you start earning, you can redeem your points for travel, gift cards and more. The Ink Business Preferred® Credit Card is an excellent option to consider since the rewards you earn can be redeemed for 1:1 transfers to airline and hotel partners like World of Hyatt, Marriott Bonvoy, United MileagePlus and Southwest Rapid Rewards. You can also cash in points for travel through the Chase portal (and get 25 percent more toward travel when you redeem rewards), or for cash back, gift cards, merchandise or experiences.
Also note that the Ink Business Preferred offers 100,000 bonus points when you spend $15,000 on purchases within three months of account opening. The spending threshold to earn this bonus is definitely high, but this amount in points is worth $1,250 in travel through the Chase Ultimate Rewards portal or $1,000 in gift cards or cash back.
Earn cash back to spend however you want
You can also focus on cash back instead of travel rewards. The Capital One Spark Cash Plus for Business is an excellent card for this effort since you earn 2 percent cash back for each dollar you spend and you can redeem rewards to cover any purchase made to your card. In the meantime, this business credit card extends new cardholders a $1,000 cash bonus doled out in two segments—$500 after spending $5,000 on purchases within three months of account opening and another $500 after spending $50,000 within six months of account opening. A $150 annual fee applies.
If you want to earn cash back on business spending without paying an annual fee, there are plenty of cards that offer this opportunity as well. One example is the Ink Business Unlimited® Credit Card from Chase. This card lets users earn a flat 1.5 percent cash back on each dollar they spend with no annual fee, and cardholders also enjoy 0 percent APR on purchases for 12 months (followed by a variable APR of 13.24 percent to 19.24 percent). This card also offers a $750 cash bonus for those who can spend $7,500 on purchases within three months of account opening.
Earn hotel or airline rewards
If you’re a business traveler who is constantly on the road or in the air, it can make sense to focus your loyalty with a specific airline or hotel program—and perhaps even both. You can earn more points for your spending and reach elite status faster with an airline credit card or hotel credit card made specifically for small businesses.
Can’t decide whether you want to earn hotel points or airline miles? In this case, a business credit card that earns Chase Ultimate Rewards points or American Express Membership Rewards points could fit the bill. Both programs let you transfer your points to frequent flyer programs and hotel loyalty programs, so you can earn points now and decide how to use them later on.
The bottom line
Your credit card rewards are not taxable, but there can still be tax implications depending on how you use them. If you pay for business expenses with reward points or miles, then you won’t be able to deduct those expenses as business purchases since you didn’t technically pay for them.
One way for small business owners to have their cake and eat it, too, is to pay for business expenses on your card in order to claim deductions and earn rewards, and then use the rewards for personal travel and spending. However you choose to use your credit card rewards, you can rest easy knowing that you won’t be taxed for earning them.