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Subject:  Credit Card Cash Back = Taxable Income? Date:  4/11/2010  6:46 AM
Author:  KMQA Number:  110072 of 127549


I recently was looking into the cash back credit cards offered by Fidelity in partnership with FIA (formerly MBNA), offering 2% cash back (no limit) into Fidelity investment accounts:

I'm wondering if this cash back is considered taxable income? I would think so, but the Terms and Conditions only mention not exceeding contribution limits to retirement accounts, not the taxable status of the cash back itself:

"It is your responsibility to ensure that contributions made by FIA Card Services, N.A. to your Fidelity account on your behalf do not violate the terms of your Fidelity account or applicable laws or regulations, including IRS rules and limitations applicable to contributions to tax-advantaged retirement and higher education savings accounts. Neither FIA Card Services, N.A. nor Fidelity Investments is responsible or liable for any tax penalties, fines, or charges imposed on you due to any such violation. FIA Card Services, N.A. reserves the right to change or cancel this redemption option at any time."

I looked at IRS Publication 525 (Taxable and Nontaxable Income):

...but this does not seem to cover this type of cash back.

"Cash rebates" are described only for goods purchased:

Cash rebates. A cash rebate you receive from a dealer or manufacturer of an item you buy is not income, but you must reduce your basis by the amount of the rebate.

Interestingly "utility rebates" are not considered taxable income:

Utility rebates. If you are a customer of an electric utility company and you participate in the utility's energy conservation program, you may receive on your monthly electric bill either:
A reduction in the purchase price of electricity furnished to you (rate reduction), or

A nonrefundable credit against the purchase price of the electricity.

The amount of the rate reduction or nonrefundable credit is not included in your income.

However, unlike the earlier version of cash back (which simply reduced your bill to the credit card company) this partnership with Fidelity will create an investment and future investment income, which I'm sure the IRS will want to tax individuals on at some point in its lifecycle.

I'm not interested in directly asking the IRS because I suspect that that will lead to the IRS deciding that it does want to tax this category of income.

What do the denizens of this board think?

Thanks for your feedback,


p.s. I had to laugh at how thorough Publication 525 is:

Bribes. If you receive a bribe, include it in your income.

Kickbacks. You must include kickbacks, side commissions, push money, or similar payments you receive in your income on Form 1040, line 21, or on Schedule C or Schedule C-EZ (Form 1040) if from your self-employment activity.

Stolen property. If you steal property, you must report its fair market value in your income in the year you steal it unless in the same year, you return it to its rightful owner.

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