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| Good to know: This guide gives general information about referral rewards and tax. It is not tax advice. The right treatment depends on where you and your reward recipients are based and how the rewards are earned. |
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Are referral rewards taxable?
They can be. Cash, gift cards, commissions, account credits, products, and other rewards can all have tax consequences depending on the local rules and the reason the reward was earned.
A one-off customer reward may be treated differently from regular commission earned by an affiliate, contractor, employee, or professional referrer. The amount, frequency, and relationship between the business and the person receiving the reward can all matter.
If you receive a referral reward, do you have to declare it?
Possibly. Receiving a reward does not automatically mean it is tax-free just because it is called a “referral reward.” The local tax rules determine whether it needs to be declared and how it should be treated.
For example, UK tax guidance specifically says that a payment for introducing another customer can be taxable where it is a payment for a service rather than a voluntary gift. In the US, referral fees paid for services can fall under nonemployee compensation rules, while some prizes, awards, and other income are reported differently.
Does the type of reward matter?
It can. Referral programs may reward people with:
Cash or bank transfers
Gift cards
PayPal or other cash payouts
Account credit or store credit
Commission
Discounts
Products or merchandise
Points or another custom reward
Cash and cash-like rewards are usually easier to value, but non-cash rewards can still have tax consequences. The fact that a reward is a gift card, credit, or product does not automatically make it tax-free.
What if your business pays referral rewards itself?
You do not need to use a reward provider to run a referral program. If your business pays rewards itself — for example by bank transfer, PayPal, account credit, a physical gift, or another internal process — your business is responsible for checking what tax and reporting rules apply.
Depending on the country and the type of payment, that may include:
Keeping a record of how much each person received
Recording why each reward was paid
Collecting tax information from recipients when required
Providing tax forms or statements when required
Reporting certain payments to the relevant tax authority
Keeping tax information and payment records securely
Do not assume that using a payment method such as PayPal or a bank transfer means the payment provider has taken care of your tax responsibilities. Your business should still confirm what it needs to track, collect, and report.
A US example: referral rewards and 1099 reporting
For payments made in 2026, the IRS reporting threshold for many payments reported on Forms 1099-MISC and 1099-NEC increased to $2,000. The exact form depends on what the payment represents. IRS guidance includes referral fees paid for services as an example of nonemployee compensation, while prizes, awards, and certain other income can fall under Form 1099-MISC.
| Important: A reporting threshold is not the same thing as a tax-free threshold. Someone may still have taxable income even when a particular information return is not required. |
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The threshold can also change over time, so US businesses should check the current IRS rules for the year they are paying rewards.
What if you use Tremendous to send rewards?
Referral Factory integrates with Tremendous, and Tremendous offers tax-management tools for US reward programs. These tools can make the administration easier, but they do not transfer the tax responsibility from the business to Tremendous.
Tremendous currently provides tools that can help businesses:
Collect W-9 information from eligible US recipients during redemption
Track annual reward totals by recipient
Include eligible rewards paid outside Tremendous in recipient totals
Export recipient W-9 information and reward amounts
Prepare ready-to-file 1099 data and forms for year-end reporting
Tremendous does not issue or e-file 1099s on your behalf, provide tax advice, or take responsibility for the accuracy of your tax filings. Its tax tools also do not handle international recipients, so businesses with recipients outside the US need to check the rules that apply in those countries.
How Tremendous handles the 2026 US W-9 threshold
For 2026, Tremendous says its W-9 collection feature can prompt eligible US recipients once their tracked payouts reach $2,000 in the calendar year, provided the other requirements for W-9 collection are met. Recipients who are prompted must complete the required information before they can redeem that payout.
Tremendous also lets businesses upload rewards paid outside Tremendous so those amounts can be included in recipient totals. That can be useful if you use Tremendous for some referral rewards but pay others yourself.
What about referral rewards outside the US?
Rules vary significantly by country. For example, HMRC guidance in the UK says a payment for introducing another customer can be taxable when it is paid for the introduction rather than being a voluntary gift. Other countries use different rules and thresholds.
If your referral program operates across several countries, avoid assuming that the US 1099 rules apply everywhere. You may need local advice for the business and for the people receiving rewards.
What should you keep track of?
Whether you send rewards yourself or use a reward provider, it is sensible to keep a clear record of:
Who received the reward
What the reward was
The value of the reward
The date it was issued or paid
Why the reward was earned
How it was paid
Any tax information or forms you were required to collect
Referral Factory can help you track who earned a reward, its value, and its reward status. That information can support your records, but it does not replace your accounting or tax records.
Does Referral Factory calculate or manage tax?
No. Referral Factory helps businesses create, track, and issue referral rewards. It does not decide whether a reward is taxable, calculate a recipient’s tax, file tax forms, or determine which reporting rules apply to your business.
If rewards are significant, recurring, or connected to someone’s work or business, check the rules with a qualified tax professional or the relevant tax authority.
The simple answer
Referral rewards may be taxable. Whether tax is due, who needs to report it, and which records or tax forms are required depends on the country, the type of reward, the amount, and why the reward was earned.
If you pay rewards yourself, your business needs its own process for tracking and reporting them. If you use Tremendous, its US tax tools can help with W-9 collection and year-end reporting, but the business still remains responsible for its tax compliance.