Taxable and Tax-Free Income
Understanding what qualifies as taxable and tax-free income is crucial for accurate tax filing. Taxable income includes wages, independent contractor earnings, and rental income, while some types of income may be tax-free. This page will help you navigate the different forms and requirements for reporting your income.
Important Information on Form 1099-K
If you received payments through Venmo, PayPal, CashApp, etc. (Zelle excluded) during the current tax year, you should not receive a 1099-K for income over $600 from a side hustle (Amazon, eBay, babysitting, etc.). The current reporting threshold is $20,000 and 200 transactions per year. The IRS plans to lower this to $5,000 or even $600, but it has not been passed yet. Visit this page to learn more about how to report 1099-K income and review taxable income as an independent contractor or other 1099 forms.
Understanding Taxable and Tax-Free Income
You can receive taxable and tax-free income as money, property, or services. Most taxable income is reported to you on a form. Some tax-free income can also be reported on a form, but it's generally less likely.
Examples of taxable income include:
- Employee wages, including fringe benefits (Form W-2)
- Independent contractor income (various 1099 Forms)
- Bartering income (Form 1099-B)
- Rental income (1099-MISC, Schedule E)
A copy of most of these forms is also sent to the IRS and/or state tax agency by the issuer. These forms are just a few examples of taxable income. You may also receive cash income, such as from babysitting or tips as a waitress, which may not be associated with a form. However, this income is still taxable and must be reported on your income tax return.
Tax-Free or Taxable Income?
Below, navigate each item to learn what makes income taxable or tax-free. Each page has descriptions and examples to help you understand. When you prepare your tax return on eFile.com, this information will be reported through a simple tax interview; IT is Income Taxes, and the eFile Tax App will guide you through IT.
Here, find a list of the most common income types that are taxable in most cases. There are always exceptions when it comes to taxes; we are here to help you find out if they apply to you.
Take a look at this page and learn about what is classified as nontaxable income. You can
contact us if you are unsure whether one or more of your income types are tax-free.
You may have some taxable income as well as some nontaxable income in the same year. For example, if you are retired and receive Social Security while also taking from your IRA, you can report both of these on your taxes though most of your Social Security income is tax free. You may also receive nontaxable military retirement income or you may be a recipient of nontaxable disability income or SSDI.
Related: Does your state tax retirement, Social Security, or military income?
See how you can save on taxes in different ways, including the right deduction method and claiming different tax credits. Begin tax planning with eFile.com and utilize this page of free, simple tax calculators. An effective way to maximize your tax savings is to increase your tax-free income while minimizing your taxable income and adding up enough deductions will help bring your tax lower. As a result, you will owe less federal income taxes and potentially less state taxes.
Balance Your Finances, Taxes
Adjust your federal tax withholding if you receive a large tax refund so you can keep more of your money during the year. When you have wages or salary as taxable income, your employer withholds tax from this based on the Form W-4 you submit. You can submit a new W-4 if your withholding is too high or too low. Use one of four eFile.com W-4 creator tools to get started.
You can also consider moving your taxable income into a tax-free savings account, like a traditional individual retirement arrangement (IRA) or a health savings account (HSA). You can deduct these contributions from your return when you put money into accounts like these. Additionally, you can maximize tax-free income by taking withdrawals from certain accounts, like a Roth IRA. Take these simple steps to save on taxes.
With a free eFile.com account, you can prepare your taxes online, and the
eFile Tax App will walk you through which types of your income are taxable and which are tax-free.
Sign up now and begin entering your tax data, and the platform will generate the federal and applicable state forms for you.
Follow this simple tax guide to prepare to file your taxes. Electronic filing or e-filing is the easiest and safest way to file your tax forms and receive your refund or pay taxes.
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