The 30 Second Answer

Cashback from purchases is not taxable in the United States. The IRS treats it as a rebate on the item you bought, not as income. This applies to Rakuten Rewards, TopCashback, credit card cashback, and store rewards programmes. What is taxable: sign up bonuses that require no purchase, referral bonuses, and bank account opening bonuses, especially when you earn more than $600 from a single payer in a year. If that happens you'll receive a 1099-MISC and need to report it.

The IRS position in plain English

This question comes up constantly and most people get half the answer. Let me give you the full one, grounded in actual IRS guidance rather than internet speculation.

The IRS has treated purchase based rebates as non taxable for decades. Their reasoning is simple: when a retailer gives you money back on something you bought, they're effectively reducing the price you paid. You didn't earn income, you just got a partial refund. The money you receive in cashback is not new wealth, it's a return of money you already spent.

This treatment was formally established in Revenue Ruling 76-96, which dealt with manufacturer rebates. The principle has been applied consistently ever since, and it covers modern cashback platforms like Rakuten Rewards and TopCashback as well as credit card rewards programmes.

IRS Reference
Revenue Ruling 76-96
Establishes that rebates paid to a customer by a manufacturer or retailer reduce the cost basis of the purchased item and are not considered gross income. This is the foundational ruling that underpins the non taxable treatment of cashback from purchases.

What is not taxable: the clean cases

These are the situations where you can confidently ignore cashback on your tax return:

✅ Not Taxable
  • Cashback from Rakuten Rewards on purchases
  • Cashback from TopCashback on purchases
  • Credit card cashback earned through spending
  • Credit card points and miles earned through spending
  • Ibotta, Fetch and receipt app rebates
  • Store loyalty rewards earned through purchases
  • Welcome bonuses that require a minimum purchase to unlock
❌ Often Taxable
  • Referral bonuses above $600 per year per payer
  • Sign up bonuses with no purchase requirement
  • Bank account opening bonuses
  • Checking or savings account promo credits
  • Cashback on a business card (reduces deduction instead)
  • Rewards exchanged for cash deposits without any spend

The distinguishing test is straightforward: did you have to spend money to get this reward? If yes, it's a rebate and not taxable. If you got the money for free, from signing up or referring a friend, the IRS generally treats it as income.

The referral and sign up bonus trap

This is the part people miss. Refer a friend bonuses and no spend sign up bonuses are taxable income. Here's why and when it matters.

When Rakuten pays you $40 for referring a friend who signs up, that $40 is not tied to any purchase you made. It's a payment for your marketing activity. The IRS classifies this as other income, and if you cross the $600 threshold in a calendar year from a single payer, the platform is required to issue you a Form 1099-MISC.

Same logic applies to TopCashback referrals. Same logic applies to bank account opening bonuses, which is why Chase, Wells Fargo, Citibank and others always send you a 1099-INT when you collect a checking or savings bonus that crosses the threshold.

📌
The $600 threshold matters. If your total referral bonuses from one platform stay under $600 in a tax year, you probably won't receive a 1099. That does not technically mean the income isn't reportable, but it means the platform isn't required to report it for you. Consult a tax professional if you're close to the threshold.

Real scenarios and how they break down

Scenario 1: You earned $420 through Rakuten purchases last year
All of this came from clicking through Rakuten to retailers like Macy's and Nike, buying things, and receiving the cashback percentage.
Not taxable, no reporting needed
Scenario 2: You earned $750 through TopCashback, including $620 from purchases and $130 from referrals
The $620 from purchases is not taxable. The $130 from referrals is income but is under the $600 threshold, so TopCashback likely won't issue a 1099. The income is still technically reportable depending on your circumstances.
Purchase portion not taxable, referral portion is income
Scenario 3: You earned $900 in Rakuten referral bonuses from a viral social post
This crosses the $600 threshold in referral income from a single payer. Expect a 1099-MISC from Rakuten and report it as other income on Schedule 1 of your 1040.
Report as other income
Scenario 4: You opened a Chase checking account and received a $400 sign up bonus with a direct deposit requirement
Bank account bonuses are almost always reported by the bank as interest income on Form 1099-INT. This is taxable even though it's under $600 because banks have different reporting rules than other companies.
Report as interest income
Scenario 5: You received $500 in credit card sign up bonus after spending $3,000 in 90 days
Because the bonus required spending to unlock, it's treated as a rebate on that $3,000 of purchases. Not taxable as income.
Not taxable, treated as rebate

Business credit cards: the one twist to know

If you run a business and use a business credit card to earn cashback on deductible expenses, there's a wrinkle. The cashback itself is still treated as a rebate, not income. But you have to reduce your deductible expense by the amount of the rebate.

Example: You buy $1,000 of office supplies on your business Amex, deduct the expense on your tax return, and later receive $20 cashback. Your actual deductible expense is $980, not $1,000. The $20 rebate effectively reduced your business cost.

Most accounting software and bookkeepers handle this automatically, but if you're doing your own books, it's worth being aware of. For anything non trivial, run it past a CPA.

How to check if you owe anything

Here's the simple annual check I run and recommend:

  1. Log into your Rakuten account and check the "Tax Documents" or "1099" section under your profile. If they've issued a 1099-MISC, it'll be there. If nothing is there, your cashback earnings fell below the reporting threshold.
  2. Log into your TopCashback account and do the same check in the account settings.
  3. Review your email inbox in January and February for tax form notifications from any cashback platform, bank, or card issuer.
  4. If you received a 1099, the amount listed must go on your tax return. If you did not receive one, your regular cashback earnings almost certainly aren't taxable.

What most articles get wrong

A lot of content online is written by people who don't understand the distinction between a rebate and income. You'll see articles claiming you have to track and report all cashback, which is flatly wrong for purchase based cashback. You'll see other articles saying no cashback is ever taxable, which ignores the referral and sign up bonus rules.

The clean rule to remember: purchase triggered rewards are rebates, non purchase triggered rewards are income. If you spent money to earn it, it's almost certainly a rebate. If the money came for nothing in return (signing up, referring someone, opening an account), it's more likely income.

Bottom Line

Stop worrying about taxes on your Rakuten and TopCashback earnings. For 99% of US shoppers using these platforms for regular online purchases, there is nothing to report. The exception is serious referral earnings and no purchase sign up bonuses, and those will trigger a 1099 from the platform if they cross the threshold.

Important Disclaimer

This article provides general information based on current US tax rules and is not tax or legal advice. Tax rules can change, and your individual situation may have nuances that change the analysis. For advice specific to your situation, particularly if you run a business or have significant rewards earnings, please consult a qualified CPA or tax attorney.