The Good News: Most Points Are Not Taxable
The IRS considers points, miles, and cash-back rewards earned through purchases as a “discount” or “rebate,” instead of income to be taxed—how altruistic of them! So, if you got miles from swiping your credit card or booking travel, you can usually redeem them without worrying about a tax bill. Same goes for hotel loyalty points earned through paid stays—the logic is the same. If the reward was triggered by a purchase, the IRS sees it as a “price reduction,” not taxable cash.
When Rewards Cross into Taxable Territory
Some rewards don’t get the “discount” treatment. The key difference is whether you had to spend money to earn them. If they weren’t triggered by a purchase, they’re considered income. That includes:
◦ Sign-up bonuses with no spending requirement (like opening a bank account and getting a $300 gift card)
◦ Referral bonuses for sending new customers to a card issuer or bank
◦ Sweepstakes prizes in the form of miles or points
◦ Points converted to cash or gift cards
In these cases, expect a 1099 form—and yes, you need to report it.
Don’t Ignore a 1099-MISC
If a bank or credit card issuer sends you a 1099, don’t just toss it in a drawer and forget about it. If you’re not sure why you got it, call the issuer. Sometimes it’s an error—other times, it’s legit, and you’ll need to report the income. Following this procedure will help you prevent a small annoyance (paying taxes on a few hundred extra dollars in income) from turning into a much bigger problem (an omission that you have to explain later to the IRS during audit).
A Smart Strategy for Travelers
Since personal travel isn’t deductible, and rewards earned from spending aren’t taxable, the best play is to use your miles and points for personal trips. Pay cash for business travel (and deduct it), earn the rewards on those purchases, then turn around and redeem those rewards for vacations you can’t write off.
To Sum It All Up
If you earned your miles or points through spending—whether on flights, hotels, or even grocery runs—you can generally redeem them tax-free. If you got them as a pure giveaway with no purchase required, that’s taxable income. Keep good records, know the difference, and you can enjoy those rewards without any post-vacation tax surprises.
