What is considered taxable interest when someone receives a welcome bonus from a new credit card?

The welcome bonus received from a new credit card is considered taxable interest because it is typically treated as income. When a credit card issuer provides a welcome bonus—such as cash or points—this amount is considered compensation for opening the account and meeting certain spending thresholds. The Internal Revenue Service (IRS) considers such bonuses as taxable income because they can be seen as a financial benefit received in exchange for consumer behavior (e.g., spending a specific amount on the card).

Cash back from purchases is generally a rebate or discount on purchases rather than income, and thus is not taxable. The amount spent on the credit card is not relevant for taxation as it does not represent income but rather the total expenditures made by the cardholder. Fees associated with the credit card, while they may incur costs for the cardholder, do not constitute taxable income either, as they are payments made for services rather than earnings.

Thus, the welcome bonus is the only element in this scenario that is viewed as taxable income by the IRS.