Yes, you can earn cashback on most credit cards, but the amount depends on which card you choose and how you use it
Cashback is a percentage of the money you spend that the card issuer pays back to you. When you buy something for $100 on a cashback card that offers 1% back, you earn $1. That $1 appears as a credit on your account, a statement credit, or a deposit to your bank account — depending on the card.
Not every credit card offers cashback. Some cards offer rewards in other forms, like airline miles or hotel points. But most major card issuers — Chase, Capital One, Discover, American Express, Bank of America, and others — have at least one cashback option.
The catch is that cashback cards almost always charge an annual fee, a higher interest rate, or both. You only come out ahead if you either pay off your balance every month (so interest doesn't eat the cashback) or if your cashback earnings exceed what you'd pay in fees and interest.
Key Takeaways
- Cashback rates range from 0.5% to 5% depending on the card and the category of purchase, with higher rates usually requiring higher annual fees.
- You only benefit from cashback if you pay your full balance monthly, because credit card interest charges will quickly exceed any cashback you earn.
- Some cards offer flat-rate cashback on all purchases, while others offer higher rates on specific categories like groceries, gas, or dining.
- Cashback is taxable income in the eyes of the IRS, though most people do not receive a tax form for small amounts.
Flat-rate cashback versus category-based cashback
A flat-rate card gives you the same percentage back on every purchase. For example, the Capital One Quicksilver card offers 1.5% cashback on all spending. You don't have to track which category you're buying in — you earn the same rate whether you're at a grocery store or a gas pump.
A category card offers higher rates on specific types of purchases and a lower rate on everything else. The Chase Freedom Unlimited offers 3% cashback on dining and drugstores, 1.5% on travel, and 1% on everything else. This means you earn more if you spend heavily in those categories, but you have to remember which card to use for which purchase.
Flat-rate cards are simpler and better if your spending is spread across many categories. Category cards pay more if you concentrate your spending in the bonus categories — but only if you actually use the right card for the right purchase. Many people earn less with category cards because they forget to switch cards or don't spend enough in the bonus categories to make the higher annual fee worthwhile.
Annual fees and when they make sense
Most cashback cards charge an annual fee between $0 and $550, depending on the card's rewards rate and features. A card with 1% cashback might have no annual fee, while a card with 5% cashback in certain categories might charge $95 or $150 per year.
To decide whether an annual fee is worth it, multiply your average monthly spending by the cashback rate, then multiply by 12. If you spend $2,000 per month on a 2% cashback card, you earn $480 per year. If the annual fee is $95, you net $385 — still ahead. But if you only spend $500 per month, you earn $120 per year, and a $95 fee leaves you with just $25.
Some cards waive the annual fee for the first year, which gives you a chance to test whether the card fits your spending pattern before you commit to paying the fee.
How cashback is paid and when you receive it
The method and timing of cashback varies by card. Some cards deposit cashback directly into your linked bank account once per quarter or once per year. Others let you redeem it as a statement credit — a reduction on your next bill — whenever you want. A few cards let you transfer cashback to a partner bank account or use it to buy gift cards.
Most cards require you to reach a minimum cashback balance before you can redeem it — often $25 or $50. If you don't redeem before the card is closed or a certain time period passes, you may lose the cashback you've earned. Read the card's terms to understand when and how you can actually get the money.
Some cards also cap how much cashback you can earn per year or per category. For example, a card might offer 5% cashback on groceries but only up to $1,500 in purchases per quarter, then 1% after that. If you spend heavily in one category, check whether there's a cap.
Interest charges will erase your cashback if you carry a balance
This is the most important rule: cashback only works if you pay your full balance every month. Credit card interest rates typically range from 18% to 29% depending on your credit score and the card. If you carry a $1,000 balance at 22% interest, you'll pay roughly $220 in interest charges over a year. A 1% or 2% cashback card will earn you $10 to $20 — nowhere near enough to cover the interest.
Even if you're only carrying a balance for one month, the interest charge can exceed your cashback earnings. A $1,000 balance at 22% interest costs about $18 in one month of interest. A 1% cashback card earns you $10. You're already behind.
If you're not confident you can pay the full balance every month, a cashback card is not the right choice for you. A card with no annual fee and a lower interest rate is better, because it costs you less when you do carry a balance.
Cashback is taxable income
The IRS considers cashback a form of rebate or discount, not taxable income — with one exception. If you earn more than $20,000 in cashback or rewards in a single year from a single card issuer, the issuer must send you a Form 1099-K, and you may owe taxes on it.
In practice, very few people earn that much cashback. You'd need to spend $400,000 per year on a 5% cashback card to hit that threshold. But if you do, you'll need to report it on your tax return. Consult a tax professional if you're unsure whether your cashback is taxable.
Comparing cashback cards to other rewards
Cashback is straightforward — you know exactly what you're getting. But other rewards can sometimes be worth more. Airline miles or hotel points can be worth 1 to 2 cents per point if you redeem them for travel, which is higher than most cashback rates. However, points are only valuable if you actually travel and if you book through the card's travel portal or partner merchants.
Cashback is better if you don't travel much, if you want flexibility in how you spend your rewards, or if you want to avoid the complexity of tracking point values. Points are better if you travel frequently and can time your bookings to maximize point value.
Frequently Asked Questions
Can I earn cashback on balance transfers or cash advances?
No. Cashback is earned only on regular purchases. Balance transfers and cash advances do not earn rewards on any credit card. They also typically charge a fee (usually 3% to 5% of the amount) and start accruing interest immediately, with no grace period.
What happens to my cashback if I close the card?
This depends on the card issuer. Some cards let you redeem cashback after closing, while others require you to redeem before the account closes. Check your card's terms or contact the issuer before closing an account if you have unspent cashback.
Can I use cashback to pay my credit card bill?
Yes, most cards let you redeem cashback as a statement credit, which reduces your bill. Some cards also let you deposit cashback directly to your bank account. The method varies by issuer, so check your account options.
Do I need good credit to get a cashback card?
Most cashback cards require good to excellent credit — typically a credit score of 670 or higher. If your score is lower, you may find cashback options with no annual fee and lower rewards rates, or you may need to build your credit first with a secured card.
Can I earn cashback on purchases made by an authorized user?
Yes. Any purchase made on the card, whether by the primary cardholder or an authorized user, earns cashback at the same rate. The cashback goes to the primary account.