IRS warning: Some credit card rewards may be taxed

If a person receives a welcome bonus simply for opening a credit card and does not need to spend any money first, the bonus can be considered taxable income. In this case, the credit card company may send a 1099 form, and the reward must be reported as income on your tax return. The IRS considers these rewards taxable regardless of whether they are cash back, gift cards, or points. Even if taxpayers do not receive a 1099 form, they are still responsible for reporting taxable awards under the “no expense” rule.

The second major exception involves referral bonuses. According to The American Sun , a referral bonus is a reward cardholders receive when they recommend a credit card to a friend or family member and receive rewards in return. The IRS generally treats these referral incentives as taxable income. Taxpayers who receive referral incentives may be required to report them via Form 1099. This rule applies even if the referral reward is offered in the form of airline miles, travel points or cash rewards.

More than half of respondents (52%) said their tax refund plays an important role in their overall budget. According to Talker Research, the vast majority of people (77%) plan to use their refunds for essential expenses. The most common use for refunds is to pay rent and bills (52%). Another 44% plan to use their refunds to buy groceries and other necessities. About 37% plan to use their refunds to pay off credit card debt. Of those who are paying off their credit card balances, 56% say they are specifically addressing debt accumulated during the holidays.

Those who expected smaller refunds cited job losses, back taxes, growing children or higher tax rates as reasons. The report also highlights that taxpayers can choose to pay their taxes with a credit card to receive incentives, The American Sun reported. However, fees charged by third-party payment processors may reduce or even eliminate the value of these rewards. The handling fee is generally 1.87% to 2.35% of the tax amount. For example, The American Sun reported that paying a $5,000 tax bill via credit card could add at least $93.50 in fees.

The IRS says refunds are typically issued within 21 days of filing, but errors can cause delays. Taxpayers who file paper returns may have to wait about a month or more as the IRS processes millions of returns during tax season. As of January 31, the average refund amount was $1,928.

During the same period in 2024, the average refund amount was $1,395. The average direct deposit refund in 2025 is even higher, at $2,069. Taxpayers can track their refund using the IRS online tool “Where’s My Refund?” The tool typically works within 24 hours of filing an electronic tax return and about four weeks after filing a paper return, according to The American Sun, citing the IRS.