Card rewards, cashback apps and bank bonuses — what they pay, how they are taxed, and when they cost you
Cashback and rewards return a small share of money you were going to spend anyway: a percentage from a credit card, a rebate from a shopping or receipt app, or a one-off bonus for opening a bank account. It is a way to spend less, not a way to earn a living, and it only works if it does not change what you buy.
Credit cards pay a flat rate on everything or higher rates in chosen categories, and many offer a sign-up bonus for reaching a spending threshold. Shopping portals and receipt apps pay a percentage or points on purchases made through them. Banks and brokerages pay cash bonuses for opening accounts and meeting deposit requirements.
Multiply your normal monthly spending by the effective rate: $2,000 a month at 2% is $40 a month, or $480 a year. Sign-up and account bonuses can add more, but they are one-off and come with conditions. Anything that makes you spend more to earn a reward is a loss.
The IRS generally treats rewards earned from spending as a rebate on the purchase, not income. Bonuses for opening an account or depositing money are usually taxable as interest or other income, and the bank may send a Form 1099-INT or 1099-MISC.
Credit card interest rates are often above 20%, so carrying a balance wipes out any rewards many times over — pay in full every month or skip card rewards. Watch annual fees, account minimums and early-closure clauses on bank bonuses, and be aware that opening many accounts can affect your credit.
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Generally no — rewards earned from spending are treated as a rebate. Bank account opening bonuses usually are taxable.
A few percent of what you already spend: at $2,000 a month and 2%, about $480 a year, plus any one-off bonuses.
Tax rules, limits and pay data change. Check the current figures with the primary source before acting on them.