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Would a waived credit card late fee be considered income?

Would a waived credit card late fee be considered income if they waived it as a courtesy? I don't think it's "income" if you are charged a fee but ask to have it waived as a courtesy.


Are courtesy credits taxable if you don't gain anything from it but maybe lose less money due to a courtesy credit, etc?

5 Replies

Would a waived credit card late fee be considered income?

No, that would not be taxable income. 

Would a waived credit card late fee be considered income?

Free money you get for opening a credit card account is taxable income, it would be considered bank interest.  However, ongoing credit card cash back rewards are not taxable  income because it’s a discount of the merchant fee, and discounts are not taxable.  Interest, fees and penalties are not deductible, and waivers or refunds of such fees are not income.  

Would a waived credit card late fee be considered income?

Thank you. When you say "free money for opening a credit card account", you mean money that is literally just given for free for opening with no money spent? I heard that if you have to "spend money to earn money", then it's not taxable (similar to cashback rewards) but if it's given just for opening a bank or card (with NO money spent), then it's taxable.


Like some cards say if you spend $1200 in the first 6 months, they'll give you $200. I heard the $200 is not taxable because you have to spend $1200 in order to get a $200 rebate or cashback. Or Capital One says $500 in the first 90 days will get usually $200 or $100 back as a bonus. 


Now, if the card says that you will get a $100 credit just for being approved with nothing spent, then it's taxable. 


Let me know your thoughts. Thanks.

Would a waived credit card late fee be considered income?

The IRS position is that the account opening bonus is taxable.  It’s treated as bonus interest.  It can’t be a discount for using the card since you haven’t used the card when the bonus was promised and it’s too much money to be a discount of the merchant fees.   Same with free money to open a stock trading account, cryptocurrency wallet and so on.  Banks only have to issue a 1099-MISC if the amount is $600 or more so you may never see a form, and most people probably never report the small awards.  

Would a waived credit card late fee be considered income?

I can't find the exact sources I read previously, but Googling it I see some here:


  • "Rewards provided as an incentive just for opening an account (without you spending any money) could be considered taxable income."


  • If you earned $200 cash back after you spent $500 on purchases in your first three months from opening a Chase Freedom® account, or if you earned 2% cash back (1% cash back when you bought, plus al 1% when you paid your card bill) on purchases you made in 2019 with the Citi® Double Cash Card , none of those rewards are taxable because you were required to spend money to receive them. (see rates and fees.)
  • Most credit card rewards are earned once you actually start using the card. There are only a few cards that award a welcome bonus automatically after account approval with no spending required.

    If you didn’t have to charge purchases on your card in order to receive the welcome bonus, the value of that reward is considered taxable income. For example, you opened a new Prime Visa account and received a $100 Amazon.com gift card.

    “The only time that credit card rewards are taxable is when you do nothing in exchange for the reward, i.e. you get 60,000 miles for signing up for a credit card, with no minimum spending,” Rossman says."


  • "Credit Card Sign-Up Bonuses

    When it comes to sign-up bonuses, things get a little murkier. Depending on how you earned the bonus, the points may or may not be taxable.

    Let's say you opened a credit card that offered a 50,000-point bonus for meeting a spending requirement of $3,000 within the first three months of opening the account. If you met the requirement and earned the bonus, you wouldn't have to report the points as income because you spent your own money to get the bonus.

    Here's where it can get sticky: If you didn't have to meet a spending threshold and you were awarded the points for simply opening an account, the value of those points would be considered taxable income by the IRS. From the perspective of the IRS, you didn't earn the bonus, so it's considered a gift."

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