Card rewards are usually described as tax-free, which is broadly true but not universally so. The dividing line is the reason the reward was paid, and it produces some counterintuitive results.
Spending-linked rewards are treated as rebates
The long-standing position of the Internal Revenue Service is that cash back and points earned by spending are a reduction in the purchase price rather than income.
Under that reasoning, a rebate cannot be income because the cardholder has not gained anything. They simply paid less for something they were already buying.
This treatment covers the ordinary case of a percentage back on purchases, whether the reward arrives as a statement credit, a deposit or points redeemed for merchandise.
Rewards that require no purchase are different
A bonus paid for opening an account without any spending requirement looks less like a rebate and more like a payment for doing business with the institution.
Banks commonly issue an information return for such payments, particularly where a deposit account bonus is involved, and the amount then appears in the taxpayer's records.
The same logic applies to referral payments, which are generally treated as income because they compensate an action rather than discount a purchase.
Business spending changes the calculation
When rewards are earned on deductible business expenses, treating the reward as a price reduction implies the deductible amount is reduced accordingly.
That does not usually create taxable income, but it does affect the size of the deduction, and the record keeping is more involved than for a personal card.
Mixed personal and business use on one account makes the allocation harder, which is one practical reason accountants push clients toward separate cards.
Reporting forms do not settle the question
Receiving an information return does not automatically make an amount taxable, and not receiving one does not make it exempt. The forms report; they do not decide.
Disagreements between a taxpayer and an issuer over whether a form should have been issued are resolved with the issuer first, since a corrected form is cleaner than an explanation later.
Positions in this area have been tested in court, and the reasoning has turned on specific facts rather than on broad rules about rewards generally.
Where a professional is required
Federal treatment is only part of the picture. State rules vary, and both federal guidance and state law change over time.
Anyone with substantial rewards income, business card activity or an unexpected information return should speak with a certified public accountant or an enrolled agent about their own facts.
The general mechanism described here explains why the question arises at all. It is not a substitute for advice on a particular return.