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f you have a credit card, you may be eligible for a rewards program. Credit card companies often offer rewards programs in an attempt to draw new customers. If you are a member of a rewards program, you may be subject to federal income taxes on certain types of rewards. Here is a review of which credit card rewards are taxable and which are nontaxable.

What Are Credit Card Rewards?

Credit card rewards are usually perks or bonuses that are offered to customers when they make a purchase or enroll in the program. For example, if you sign up for a new credit card, you may be eligible for rewards points or airline miles, which you may earn with qualified purchases. Some credit card companies offer cash rewards or physical gifts for cardholders who make a certain amount of purchases per year.

Taxable Credit Card Rewards

A few credit card rewards are subject to federal income tax. For example, some credit cards allow customers to open a new bank account upon approval. If you receive a cash bonus in the new account, that cash may be reportable to the IRS as interest income. If your credit card includes this kind of bonus, you'll receive a Form 1099-INT with the amount of your taxable income.

You may also be subject to income tax if you receive a noncash account bonus such as a prize. In this case, you are only obligated to report the value of the prize if it exceeds $600. If your prize is worth more than $600, you'll need to include the fair market value of the bonus as miscellaneous income. You'll receive a Form 1099-MISC stating the taxable value of the prize that should be reported.

Nontaxable Credit Card Rewards

In most cases, noncash credit card rewards are worth less than $600, so you probably won't have to worry about tax issues at all. Even cashback bonuses may be exempt from tax if they hold a spending requirement. For example, if your bonus depends on your spending a certain amount of money on the card, then the IRS will not require you to report that bonus as income.

Credit card rewards programs are generally free from federal income taxation, especially if they involve noncash prizes worth less than $600 or are tied to spending habits. Be sure to read your credit card's terms and conditions to find out if you are subject to any taxes upon receiving your rewards.