Are Business Credit Card Rewards Taxable?

Whether a business credit card offers rewards or not, it can be an incredibly useful and valuable tool in making your life much simpler when calculating taxes. An assigned business card assists in keeping business and personal expenses separate. Additionally, business cards come with several benefits varying from consumer protection, travel rewards, and cashback. So the question remains, are business credit card rewards taxable?

Since your business credit card rewards are not categorized as income, these rewards are not taxable. One may get easily confused with these rewards earned with a business card because of how they are treated by the IRS (Internal Revenue Service).

Rewards earned through credit cards are treated as a sort of refund repayment on the items bought using a credit card. Money received as a rebate is also not taxable. So it is safe to say that credit card rewards received in the form of a gift card, statement credit, travel credit, or cash will not be taxable.

What is a Business Credit Card?

Your business credit history and business credit score start building the minute your corporate credit card is activated. Just like your personal score, the business credit score is impacted by several factors such as the utilization of credit, history of payment, and the length of credit. Business credit scores are public and grade debtors on a 1 – 100 scale, unlike personal scores, ranging between 350 – 850.

Some business card transactions affect business and personal credit scores, whereas certain activities affect business scores. This mostly depends on the credit card lender and what they opt to report. The purchases you make using a corporate credit card add to your credit utilization ratio, which indicates that a high balance on your business card can negatively impact your personal credit if a creditor reports all your corporate card transactions to both consumer and business credit bureaus.

It works the same way for negative entries and less-than-stellar business credit utilization. On the contrary, a business credit card reward can also increase personal credit scores as long as you ensure and exhibit responsible usage of the card and your lender reports the correct activity to consumer credit bureaus.

Are Business Credit Card Rewards Taxable?

Since credit card rewards are earned on a percentage of your spending, they are not taxable. This is also applicable to other kinds of rewards earned using a business credit card, such as flyer miles and hotel points.

As per the IRS, a number of issues pertain to the benefits earned from business credit cards, such as when and how income is valued and how to differentiate between “personal use benefits attributable to business expenditures vs. those attributable to personal expenditures.” Because of this, the IRS has not initiated a tax enforcement program in regard to promotional benefits.

What is The Difference Between Awards and Rewards?

Business credit card rewards are not taxable; however, some types of rewards require taxes to be paid. For instance, bank bonuses are earned when opening new savings or checking account, where money is not required to be spent as these bonuses are not considered a rebate.

This is the main difference between taxable and non-taxable rewards. Business credit cards require money to be spent to earn rewards such as cash back or travel miles, which are returned to consumers as a rebate on their spending. Banks and financial institutions send out a 1099–INT tax form if you’ve earned any bonus, which you didn’t have to spend money for. This form is sent to report the interest earned in a high-yield savings account or a checking account.

How To Use a Business Credit Card For Rewards

You’ve probably wondered when is the right time to apply for a business credit card if you’re starting to build your career. Having a corporate credit card helps you get rewards as the cost of doing business is covered. Additionally, making all your purchases using a business credit card makes it easier to calculate taxes. It is advised to separate your personal and business expenses.

However, remember that your credit and business credit are interlinked and impact each other. Since a few business credit card lenders report accounts to the three major consumer credit bureaus, the utilization of your corporate credit card affects your personal credit by either raising it or lowering it.

Read further to get a better insight into how these cards affect personal credit and how you can manage to achieve a high personal and business credit score.

Bottom Line

A business credit card rewards and awards are not always taxable, but taxes may be charged depending on the card’s utilization. If business expenses are paid with rewards or mile points, they are not deducted from the business expenses as you are not technically paying for them.

Use the rewards and rebates earned from flyer miles and personal spending to claim deductions and earn rewards using your business card. Taxes are charged depending on how you utilize your card, so the question remains, are business credit card rewards taxable?