In this article
You might like
No items found.
See the latest spending trends for 25k+ companies on Ramp

Benchmark your company's expenses with Ramp's data.
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Spending made smarter
Easy-to-use cards, spend limits, approval flows, vendor payments —plus an average savings of 5%.1
|
4.8 Rating 4.8 rating
Error Message
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Get fresh finance insights, monthly
Time and money-saving tips,
straight to your inbox
|
4.8 Rating 4.8 rating
Thanks for signing up
Oops! Something went wrong while submitting the form.
Ready to partner with Ramp?
Time is money. Save both.
Ready to partner with Ramp?
Time is money. Save both.
Ready to partner with Ramp?
Time is money. Save both.
Table of contents

So, you’ve applied for a new business credit card, and you’re ready to start spending and taking advantage of your credit card rewards.

But how do you account for these rewards? Is cashback considered income, a non-expense, or something else? What if you got a welcome bonus? Are there any tax implications there? In this post, we discuss some considerations for dealing with the different types of credit card rewards.

Of course, individual circumstances and card terms will vary, so please consult with your professional advisors when making decisions for your business.

How are credit card rewards treated in accounting?

Generally, credit card rewards are not considered income, so they’re not recorded on a balance sheet. If your credit card has a points-based system or airline miles, then you probably won’t need to report your rewards. Cash rewards are the only exception—if you receive a cash bonus, like a sign-up bonus, then this will be considered other income by the IRS, and so it will need to be recorded on your balance sheet.

There’s no definitive guidance in U.S. GAAP about how to account for credit card rewards on your financial statements, so you will often have to rely on the credit card companies to tell you whether your rewards are considered taxable income. They’ll usually do so by sending you a 1099-MISC form, but only if your rewards exceed $600.

Let’s take a closer look at the difference between cashback rewards and points-based rewards and how to account for each.

Cashback vs. points

Your first choice when choosing a credit card issuer is what kind of loyalty program you want: cashback or reward points. Since cashback is denominated in dollars, it tends to be easier to account for.

Depending on the terms of your card, cashback could be considered an asset that you accrue until you redeem it. The credit card company giving you that cashback may be booking the amount on their balance sheet as a liability to you.

If your rewards are denominated in points—well, what’s a point worth? If the value of a point changes, do you book realized / unrealized gains when you finally redeem them? It’s certainly possible to manage that complexity, but with cash, the value doesn’t change.

Often, accountants don’t put unclaimed cashback or rewards on their balance sheets, and instead only log it when it’s redeemed as a statement credit. But if for some reason you wanted to—perhaps the accrued has ballooned to something material—posting the value of the asset would be quite tricky to do with points, and their value can fluctuate against the US dollar without their rates being reverse-engineered by folks like The Points Guy.

Sign-on bonuses

How might you account for a sign-on bonus, i.e., a reward in cash that you receive for enrolling in a card program? This would be considered a monetary incentive and would need to be treated as other revenue. Several financial institutions are issuing 1099s for any sign-on bonuses they provide, meaning they are being reported to the IRS as taxable income paid to you. You will only receive such a form if your cash bonus exceeds $600 put into your bank account.‍

In a business’s Chart of Accounts, a sign-on bonus might be recorded as follows, assuming it was received on the day of signup:

Debit
Asset
Checking account
$500
Credit
Revenue
Other revenue
$500

Earned cashback

Earned cashback could be treated differently as it is earned as a result of spending money on the card. You might treat it as a cash rebate, as detailed in IRS Publication 525.

For example, if a business goes and purchases computer supplies and then receives cashback as a result of making that purchase, that business could use the cashback to reduce the original purchase price. This wouldn’t increase income directly, but would increase the tax basis because the business expense level has been reduced.

If the business were to purchase $400 worth of computer supplies, and the purchase and cashback were all to happen on the same day, the accounting using the above approach might be:

Debit
Expense
Computer supplies
Purchase
$400
Credit
Expense
Computer supplies
Redeemed cashback
$6
Credit
Liability
Ramp card
 
$394

Although it is more customary to combine the two expense lines into a single line:

Debit
Expense
Computer supplies
Purchase
$394
Credit
Liability
Ramp card
 
$394

In truth, there is likely to be a separation in time between when cashback is earned and when it is redeemed. In that case, a business might want two entries:

Purchase is made

Debit
Expense
Computer supplies
Purchase
$400
Credit
Liability
Ramp card
 
$400

Cashback is redeemed

Debit
Liability
Ramp card
 
$6
Credit
Expense
Computer supplies
Redeemed cashback
$6

Card providers often permit cashback to be redeemed several periods later, and after the original purchase period has been locked, even though it is applied to the original purchase. If a business were trying to account for this accurately the journals might be:

Purchase is made

Debit
Expense
Computer supplies
Purchase
$394
Debit
Asset
Accrued cashback
Cashback
$6
Credit
Liability
Ramp card
 
$400

Cashback is redeemed

Debit
Liability
Ramp card
 
$6
Credit
Asset
Accrued cashback
Redeemed cashback
$6

However, accountants often do not post accrual entries for cashback.

Redeeming cashback in a lump sum

In practice, cardholders don’t generally redeem cashback on individual transactions, but they will periodically redeem the cashback that they’ve accrued as a lump sum. How might we think about this?

The concept is no different: the lump sum of cashback is an aggregate discount on all the purchases that have been made on the card over time.

The most common way to manage the accounting is to apply cashback to a single account, i.e., a Cashback Earned account or similar. Some people use an income account, whereas others prefer a contra expense account (i.e., an expense account with a negative balance), but when aggregated with all monthly expenses would result in the right expense value.

Debit
Liability
Ramp card
 
$500
Credit
Expense/Revenue
Cashback earned
Redeemed cashback (all purchases)
$500

Either approach can work, depending on your circumstances and preferences. Adding cashback to income but not expenses should result in the same taxable difference as subtracting cashback from expenses and deducting the result from income. However, a purist may choose to use a contra expense account, especially if they consider cashback a reduction in the cost basis of the original expenses.

Ready to take control of your finances?
Learn about Ramp’s pricing
plans and start saving today.
Pricing preview

‍Are credit card rewards taxable for a business?

Cash rewards are taxable for a business, while other types of rewards are not. So, if you’re earning rewards points or frequent flyer miles, these will not be taxable deductions on your business expenses. Also, cash rewards are only taxable when they’re earned, so they won’t be tax-deductible if you haven’t redeemed them yet.

Avoid the accounting headache

With Ramp, you can save an average of 5% by spending less time and money across your entire business, and one of our goals is to simplify the work you need to do to compensate for it with our accounting automation. For most accounting providers, we allow you to sync your claimed cashback to your accounting system, so we do all the operational work for you.

If you’re on a program that uses different cashback rates for different categories, or worse, points, you might be in for a bit of an accounting headache when it comes to month and year end closing. Ramp’s rewards program has been designed from the ground up to help you close your books faster.

The information provided in this article does not constitute accounting, legal or financial advice and is for general informational purposes only. Please contact an accountant, attorney, or financial advisor to obtain advice with respect to your business.

Try Ramp for free
Error Message
 
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Director of Product, Ramp
Matt has built, managed, and led successful product teams around the globe. Prior to Ramp, he was a GM of Product at Xero. He's also been a non-executive director at Data Coalition, an organization that promotes the use of standards in the delivery of US federal government services.
Ramp is dedicated to helping businesses of all sizes make informed decisions. We adhere to strict editorial guidelines to ensure that our content meets and maintains our high standards.

FAQs

How are cashback rewards treated in accounting?

It depends on the type of reward and how the company redeems it. If your card offers a $500 dollar sign-up bonus, for example, the IRS could treat that as taxable income. However, if you get $500 as a reward for spending $2,000 in the first month with that credit card account, that perk is viewed as a rebate and not taxable by the IRS.

What are the financial considerations when accounting for cashback rewards?

Don’t forget to:

  • factor in your annual fee
  • remember what is taxable and what is not
  • use accounting software
  • always double-check statement credit card charges to see whether they can be written off or not.
What is the difference between credit card points and credit card cashback rewards?

Unlike debit cards, credit card companies offer either a percentage of purchases in cashback, or on a redeemable point system that you can use for  things like airline travel. Depending on your account type, some cards offer points that can be redeemed for cash. In some cases, the points or miles are more valuable than the cashback amount. 

However, cashback can be more consistent, easier to redeem, and more versatile. It really all depends on your business expenses. If you use a lot of gas, taking advantage of cashback on gasoline purchases would be ideal. Or, if you take a lot of clients out to lunch, cashback on restaurants could go a long way.

How do refunds work with credit card rewards?

When a refund is issued to your bank account for a purchase made on a credit card, generally, the points, miles, or cashback will be removed from your rewards balance.

How The Second City expedited expense management and gained financial control with Ramp

“Just do it:” How Bratjen Construction Modernized Processes, Saved Time, and Improved Accuracy with Ramp

“Prior to Ramp, we had a handful of cards that our owners and leadership had access to, but it was more of a trust based system. Ramp has allowed us to give cards to more people, but the controls in Ramp ensure that the cards are used properly.”
Michael Irvin, Director of Operations, Bratjen Construction

How MAGNA-TILES® implemented a corporate card program, reduced stress, and prepared to build with Ramp

"In my day-to-day, Ramp helps me resolve things quickly and expedite month-end close. From an overall holistic business standpoint, we now have the ability to quickly scale as we add new users. It’s kind of crazy how quickly things have grown here, and Ramp has been a great partner for us in that growth.”
Tim Borse, Assistant Controller, MAGNA-TILES

How Eventbrite streamlined processes and improved UX with Ramp

"The Ramp dashboard easily shows how many cardholders are paying for the same subscription. Now the procurement team has the information they need to negotiate a corporate package.”
Laura Moreno, Sr. Manager, Global AP, Eventbrite

How Boys & Girls Clubs of America improved efficiency, gained visibility over spend, and regained lost time with Ramp

How Evans Hotels saved time and gained spend visibility with Ramp

“Ramp has been a big win for us when it comes to transparency and visibility. If the executive team wants to dig into spend at a property or review purchases the teams are making, we can have that information really quickly and are confident it’s accurate.”
Caryn Fink, Director of Accounting, Evans Hotels

How Ramp became KIPP Nashville’s biggest financial win

"There was no fire drill for the beginning of the school year this year, because the schools had a process. Ramp will ingest the line items automatically, so no more manual import. It’s made the process so much easier."
Carey Peek, CFO, KIPP Nashville Public Schools

Time is money. Save both.

Powerful cards with an average of 5%1 savings.
Error Message
 
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
No, thank you