Income received during the year is either taxable or non-taxable. This means the income can be reported on a tax return and used to compute the amount of a refund or tax liability. Income should be reported in the year received and should not be combined for different years. It is important to file a return within three years after the end of the year in which the income was received, to claim your refund and failure to file is likely to result in you not receiving your refund.
If you do not file and you are due a refund, a return will not be prepared on your behalf and your right to a refund will expire three years after the due date. If you do not file and you owe, a return can be (and is likely to be) filed on your behalf and payment sought for the tax due. The following is a description of some of the taxable sources of income for which a return should be filed.
Accrued Leave – is generally a lump sum payment for vacation leave or personal days that are paid upon retirement or resignation. This income is reported on Form W-2.
Alimony – is payment(s) received from a marriage settlement. This income is reported on Form —–
Backpay – is an amount awarded in an employment settlement and generally includes payments for damages, unpaid life insurance premium, and unpaid health insurance premiums. This income is reported on Form W-2.
Bonus and Awards – includes amounts paid by an employer that are in addition to regular wages, salaries, and compensation. It also includes prizes such as a vacation trip. This income is reported on Form W-2.
Court Awards and Damages – such as the following are taxable.
- attorney fees and costs, including contingency fees
- attorney fees and costs related to whistleblower awards
- backpay for emotional distress
- compensation for lost wages
- damages for breach of contract
- damages for copyright infringement
- damages for interference of business operations
- interest on the court award and damages
- lost profits from a business
- punitive damages
- settlement of pension rights of a plan you did not contribute to
Credit card insurance – that make the minimum monthly payment on your credit card if you cannot pay because of injury, illness, disability, or unemployment. Report this income on Line 8 of Schedule 1 of Form 1040.
Election Official fees – are taxable. Report on Line 8 of Schedule 1 of Form 1040.
Farm income – from operation of a farm for business, recreation, or pleasure is taxable income. Records of income and expenses of operation of the farm should be maintained and used to complete Schedule F, Profit or Loss from Farming.
Gambling winnings – are reported on Line 8 of Schedule 1 of Form 1040 and expenses are reported on Schedule A, Itemized Deductions. Form W-2G will be issued from the payor of gambling winnings. If you are in the business of gambling, report gambling income and expenses on Schedule C, Profit or Loss from a Trade or Business.
Hobby Income – is reported as income, however expenses may not exceed the income received. Individual records of the income and expenses should be maintained for tax reporting purposes.
Inherited Pension or IRA – is reported on by the employer (or their trustee) on Form 1099-R.
Interest income – on savings accounts and savings bonds are reported on Form 1099-INT.
Jury duty pay – is reported on Line 8 of Schedule 1 of Form 1040. If jury pay is given to an employer, the pay can be reported as an adjustment to income on Schedule 1, Line 22 of Form 1040.
Lost wages or income – can be from personal services provided as an employee or from operation of your own business. Income as an employee is reported on Form W-2; individual records of income and expenses should be maintained for operation of a business.
Lottery and Raffle winnings – are reported on Line 8 of Schedule 1 of Form 1040 and expenses are reported on Schedule A, Itemized Deductions.
Moving expense reimbursements – received after 2017 are taxable.
Net Investment Income (NII) – includes interest, dividends, capital gains, rental and royalty income, non-qualified annuities; income from businesses involved in trading financial instruments or commodities; and businesses that are passive activities within the meaning of IRC section 469. This rule went into affect on Jan. 1, 2013 and affects income tax returns of individuals, estates and trusts beginning with the first return filed on or after Jan. 1, 2013. The applicable rate is 5.8%.
Nobel Prize – the value is taxable.
Notary Public fees – are reported on Schedule C-EZ or C.
Prizes and Awards – are reported on Line 8 of Schedule 1 of Form 1040.
Pulitzer Prize – the value is taxable.
Sale of Home – gain on the sale of a home in excess of $250,000 (and $500,000 for married filing joint) is taxable. Sale of home in excess of $250,000 (or $500,000) is taxable if a home is sold within less than two years of the sale of a prior home.
Severance Pay – is a payment received for cancellation of an employment contract. This income is reported on Form W-2.
Sick Pay – is received while sick or injured as part of wages, salary, or compensation. This income is reported on Form W-2.
Stock Appreciation Rights – is a cash payment equal to the fair market value of the company’s stock on the date of exercise minus the fair market value of the stock on the date the right was granted. This income is reported on Form —–
Unemployment – is taxable income and should be reported on your return in the year received. Recipients can choose to have a flat 10% withheld by completing Form W-4V, Voluntary Withholding Request and give it to the agency that will pay the benefits or with the payer if there is one. Form W-4V should not be filed with the IRS. If no federal taxes are withheld, individuals can be estimated tax payments.
Virtual currency – received as payment for services is subject to federal income tax withholding, federal insurance contribution act (FICA), and federal unemployment tax (FUTA). The fair market value of the currency must be included in income.
Wages, salaries, and compensation – is income received from performing personal services as an employee. This income is reported on Form W-2.