[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.