India, June 6 -- The IRS says most credit card rewards are not taxable because they are treated as a discount or rebate, not as income, according to IRS rules. This rule covers rewards earned from normal spending, including cash back, airline miles, and hotel points. Welcome bonuses that require cardholders to spend a certain amount before receiving the reward are also generally not taxable. However, there is an important exception called the "no spend" rule.

If a person gets a welcome bonus simply for opening a credit card and does not have to spend any money first, that reward can be considered taxable income. In such cases, the credit card company may send a 1099 form, and the reward must be reported as income when filing taxes. The I...