Credit Card Rewards Are Partly Taxable Per New Court Case
I first off have to give a big thanks to Derrick from Travel on Point(s) for sending this to us. I will also say I am not going to give a ton of commentary on this since I am not a legal professional. The purpose of this post is more to share the information so that you can read it for yourself. But from the court case it appears that credit card rewards are partly taxable. This is focused on increased spending and not for rewards earned via normal avenues.
KONSTANTIN ANIKEEV AND
NADEZHDA ANIKEEV, Petitioners
COMMISSIONER OF INTERNAL
Is about a couple that used an old Amex Blue Cash card to rack up cash back rewards. They did this on a huge scale in 2014, to the tune of over $5M in charges. The vast majority (almost all) of these charges were for cash equivalents like Green Dot reloads, money orders and Visa gift cards. With the old Amex Blue Cash they would earn 5% on these purchases at supermarkets and pharmacies once they passed $6,500 in purchases each year. That means a majority of the $5M in charges earned 5%, to the tune of over $270,000 in rewards in 2014.
The IRS took them to court saying that these earnings should be considered income since no goods were purchased once the gift cards were turned back into cash via money orders and other routes.
Here is the court case summary:
Take a look over the documents and then share your thoughts on it in the comments section. We are hoping to dive into this in more detail after talking with some legal professionals to get their take on it.