Tax Questions About Cashback Rewards

catsmeow

Hi, I have a few questions for you good people. This past December I earned $450 in referral bonuses from Capital One Shopping. Not actual cash, you have to use the rewards on gift cards they offer. So I have the following questions.

1. I live in Georgia and want to know what form I need to fill out about this? Will Capital One Shopping send me a form of any kind?

2. Since I am unemployed, are there any additional forms I would need to fill out?

3. Can't I do this on the IRS online site for free? Or what site to use?

4. When should I pay this?

Sorry for all the newb questions, I'm just trying to do the right thing.

Thanks in advance for your help!

kiarab

Hello,

Great question. While most credit card rewards are not taxable, referral bonuses are. This is mainly due to the IRS considering most credit card rewards as a discount or a rebate, rather than something you earned. While a referral bonus is considered taxable due to the fact that you didn't spend money to earn it, you got the credit card company a new customer, so it's sort of like you received a commission for the referral.

1. You may get a form. If you do, it's likely to be a 1099-MISC which is for miscellaneous income. However, they are usually not required to file one if it is under $600. Regardless if you receive a form or not, you can still report it on your federal and state tax return. On our site, you can report it as Other Income.

2. Your unemployment shouldn't impact how you report this income. So there shouldn't be any additional forms. However, on your tax return, if you received unemployment compensation, then you would also want to report that on your tax return.

3. FreeTaxUSA does provide the federal return for free and the state return is only $14.99. If you qualify, you may be able to get a free state return as well through the FreeTaxUSA Free File site.

However, based on what you said, you may not have enough income to warrant filing a tax return. If your income is below a certain threshold, you usually do not need to file a tax return, even if you received income. The IRS has a helpful quiz you can use to determine if you need to file:

https://www.irs.gov/help/ita/do-i-need-to-file-a-tax-return

4. If you end up owing taxes, then you have until the filing deadline (April 15th) to pay and have it be considered on time. If you do not pay, you may be subject to late penalties and fees.

Let us know if you have any follow up questions.