[Pyxl101]

It always seemed very strange to me that it's legal for company-expensed credit card purchases to generate individual, personal rewards for the card holders. (And these awards aren't even taxed?) Something feels underhanded about it, though I can't put my finger on it.

[dragonwriter]

The theory of why normal credit card rewards aren't taxable is that they are a discount. OTOH, if it's a corporate expensed card or purchase, but the discount goes to the employee, it seems that either:

(1) the “reimbursement” for the full cost isn't all bona-fide reimbursement, since you are getting reimbursement for more than you paid after the discount, and therefore should be taxed like any other compensation from your employer, or

(2) The rewards you get in that case simply aren't discounts, and should be taxed as normal, but not employment compensation, income.

(These differ, because #1 has payroll tax implications that #2 does not, as well as the income tax implications.)

The fact that neither of these send to happen is either a legal loophole with no strong theory or just an administrative failure.

[ghaff]

It’s mostly (with some exemptions) formal policy from the IRS. I suspect the real justification is that a lot of these things are hard to value, the numbers are small in the scheme of things, and compliance would be very low. It actually makes a lot of sense not to put a rule in the books everyone would ignore.

[dragonwriter]

That makes sense, more of an administrative optimization around thw current conditions than an administrative failure.

OTOH, that makes it an unstable thing to build a business model on expanding, since the more significant it becomes with entities other than credit card firms exploiting it as a marketing and loyalty tool, the less it remains the case that it is efficient to let it slide.

[ghaff]

See also airline and hotel reward programs, etc. Basically it stays below the level where it starts to look like a kickback and it’s not totally unreasonable for heavy business travelers to get some perks in exchange for lots of time away from home.

[jacques_chester]

Originally this was a trusteeship problem: the card-holders were the named beneficiaries of points schemes, but the cards belonged to the company.

So there's a pile of points growing, which must be accounted for in the balance sheet, but which are essentially worthless to the company. And being a trustee is a legal hassle nobody wants to deal with if they can avoid it.

So the companies just hand those points and rewards over to the employee contractually, which dissolves the trust (since the employee now beneficially owns and legally owns the points). Much easier. And you can spin it as benevolent generosity to boot.

(Of course, I am not a lawyer.)