Can You Use Business Credit Card Rewards for Personal Use?

Business credit cards are financial tools designed to help business owners manage expenditures and cash flow. They facilitate the separation of business and personal expenses, which is beneficial for bookkeeping and tax purposes. These cards often come with rewards programs, offering benefits such as cash back, points, or miles on business-related purchases. A common query arises regarding the personal use of these accumulated rewards.

Using Business Rewards for Personal Spending

From the perspective of credit card issuers, using accumulated rewards from a business credit card for personal spending is generally permissible. Rewards, whether in the form of cash back, points, or miles, are typically viewed as a rebate or a discount on previous spending, rather than a direct form of income. For instance, if a business earns 2% cash back on a $100 purchase, that reward is considered a $2 reduction in the cost of the initial purchase. This understanding permits the cardholder to redeem these rewards for personal benefit.

While the personal use of rewards is often allowed, it is important to distinguish this from using the business credit card itself for personal expenses. Using the card for personal purchases can violate the card’s terms and conditions and can complicate financial records. The general principle of maintaining clear separation between business and personal finances remains a fundamental best practice for financial clarity and regulatory compliance.

Tax Treatment of Personal Use

The Internal Revenue Service (IRS) generally considers credit card rewards earned through spending to be a rebate or discount on the purchase, and therefore, these are typically not considered taxable income. This applies to various reward types, including cash back, points, and airline miles, as they reduce the effective cost of an item or service. For example, a cash back reward on an office supply purchase is viewed as a reduction in the price of those supplies, not as new income.

However, there are specific scenarios where credit card rewards could be considered taxable income. Rewards, such as cash bonuses or substantial incentives, that are given without a spending requirement, like simply for opening an account, may be taxable. Referral bonuses, where an individual receives a reward for referring a new customer without any personal spending requirement, are also typically considered taxable income. If the value of these taxable rewards from an issuer reaches $600 or more in a calendar year, the credit card company is generally required to issue a Form 1099-MISC or 1099-NEC to the recipient and the IRS.

A different tax consideration arises when rewards are earned on expenses that the business has deducted. If a business deducts the full cost of an expense and then receives a reward (e.g., cash back) for that expense, the value of the reward effectively reduces the deductible amount. For instance, if a business purchases a $500 piece of equipment and receives $10 cash back, the actual deductible expense should be $490. This adjustment is made because the reward is seen as a reduction in the initial cost, impacting the business’s net expense for tax purposes.

Documentation and Reporting

Record-keeping is important for business expenses that generate credit card rewards. This practice simplifies accounting and provides a clear audit trail for how rewards were earned and redeemed. Maintaining separate records for business and personal finances, even when rewards are used personally, remains a foundational element of sound financial management.

If credit card rewards are deemed taxable income, such as sign-up bonuses without a spending requirement or referral bonuses, the recipient is responsible for reporting this income. Even if a Form 1099 is not received (for amounts less than $600), any taxable credit card reward income should still be reported on the individual’s tax return. The value of rewards that reduce a business deduction should be accounted for by decreasing the original expense amount, ensuring accurate financial reporting for the business.