Are credit card rewards in the form of cash or points taxable?

The Los Angeles Times wrote an article yesterday about CitiBank issuing 1099s to customers that parked their money in their checking or savings products.

If you receive a bonus by parking your money in a checking or savings account, I think it is perfectly reasonable to issue a 1099. You did not have to spend any money for this. The bonus is clearly income.  If you earn points though, it seems silly to value 1 point at 2.5 cents. How did they arrive at that valuation? With cash back, the valuation is clear. When you use points to redeem for gift cards, travel, or hotel… I don’t think it is fair to value at those rates. At best, Citi should be valuing 1 point as 1 cent.

If you have to make purchases on your credit card for the reward, I would consider it a “rebate”. If it is a statement credit or cash back, if you have a business, the rebate would be a positive form of “purchases”. If you bought $100 worth of supplies and received a $2 rebate, your supply cost is $98.

My issue is that banks sometimes require high redemption tier to such as 25,000 points to redeem $250. If Citi would like to state 1 point is worth 2.5 cents, then shouldn’t I be able to redeem that as $625? That’s not the case today, so I don’t understand why they can even get away with this?

Are they trying to make their points liabilities look good on paper so they seem more profitable? Seems like sketchy accounting here possibly?

Citibank deems frequent-flier miles taxable, but does the IRS?

The bank is sending tax forms to customers who received thousands of airline miles as a reward for opening a checking or savings account. The IRS should say what implications that has for taxpayers.