Rewards credit cards enable the cardholders to redeem the reward points for a statement credit. Hardly, you may receive credits automatically. However, with a statement credit, the card issuer adds money to your credit card account balance instead of making a deposit to your bank account or sending you a check. Statement credit is a cashback reward, which you have earned via your credit card.
Introduction to Statement Credit
Many card issuers are offering special statement credits in a bid to attract new customers. And, even if your card has no statement credit policy, you will receive a statement credit whenever you have returned an item purchased using your credit card.
Statement credits vary from one card issuer to another. While statement credits often reflect as a transaction in your monthly statement, it may also be listed under a separate category. In many cases, statement credits appear as a transaction for a negative amount on your credit card statement. Occasionally, you receive them as a cash rewards program offered by the credit card network or card issuer.
How Does Statement Credit Work?
Typically, statement credits are a form of cashback rewards or credit card rebates. Most often, a statement credit will reduce the outstanding credit balance on your credit card. In contrast, the statement credit will reduce the overall outstanding amount, but not the minimum due. Statement credit sometimes also reduced interest charges determined by your exceptional credit card balance.
How do you receive the statement credit?
Statement credit could come in different forms as follows;
Returns
Whenever you return any purchase made online using your credit card, the purchase amount gets credited back to your credit card. However, the returned amount is added back to your credit limit and reflects as a statement credit.
Cashback rewards
In a bid to retain loyal customers and gain new card users, many credit cards offer cash back rewards in the form of a statement credit. Here, the cardholder must redeem the cashback reward to decrease the outstanding card balance.
Travel rewards
Statement credit may also be travel rewards offered to cardholders provided they book tickets or travel itinerary using their credit card.
Do You Need to Pay Tax on Statement Credit?
Most of the credit card rewards are not taxable. However, cardholders are still required to report the rewards as income while filing their taxes. Some of the taxable statement credits are the credit card referrals and sign up bonuses.
Sign-up bonuses vary from one credit card network to another. Some sign-up bonuses do not need you to purchase anything or charge any amount. In such cases, you will receive the sign-up bonus amount as cash, which is taxable. Similarly, credit card referrals are also taxable.
However, cashback reward where you receive cash directly is untraceable and thus non-taxable income. Moreover, cashback rewards and statement credit, which are considered as rebates, are not taxable. Therefore, make sure your credit card issuer clearly defines the rebate terms to avoid taxes.
The bottom line is the right statement credit helps you reduce the outstanding balance on your credit card alongside lowering the rate of interest on the sum owed on your card. Nevertheless, irrespective of the type of statement credit, it does not affect the minimum payment, which must be duly paid before the stipulated time.
Conclusion
While statement credits have their own set of benefits, it is essential to understand whether they fall in your tax bracket or not. Make sure to opt for the right credit card with cashback rewards that are considered rebate rather than income.
