What Income Is Taxable?
Income you receive is most likely taxable unless it is specifically excluded by law, and generally must be reported on your IRS and/or state tax return when you file taxes. However, there is also nontaxable income that you may need to report on your tax return. The eFile.com Tax App will guide you through this during the online tax preparation process.
Below are examples of taxable income to consider when determining whether a tax return must be filed. If you have little or no income, find out if you have to file a tax return. These taxable income categories apply to federal income and might not apply to taxable state income; learn about states that apply to you.
Related: Which states tax retirement income?
You can reduce taxable income by maximizing your tax deductions, increasing your nontaxable income, getting married, and adding dependents. See more ways to save on taxes here; read below to find out what income is taxed.
Not sure if a certain kind of income is taxable? Use our free Tax Refund Calculator 2022 to estimate your taxes and find out how you are being taxed before you prepare and eFileIT: IT is Income Taxes!
Taxable Income Types
What is taxable income? How do I calculate taxable income?
Below, find various types of taxable income and information about each of them. Make sure you gather your income tax forms (W-2, 1099) associated with each type of income. If you have multiple types of income, prepare your return on eFile.com and we will help you report all of your income on your 2022 Tax Return. Reporting multiple types of income can get complicated, but the eFile Tax App will calculate them on the proper forms for you. You can file your wages from a part or full-time job, your self-employment income, and your retirement income all on one return via your eFile account.
When you use tax software, taxable income and the state and federal taxes will all be calculated for you. Spare yourself the hassle and eFileIT. You can also estimate your taxable income here to get an idea of your tax situation.
Have your income and deduction forms on hand when you prepare and file your taxes online, but do not rush IT until you are certain you have all your income forms at hand. Use the eFile.com Tax Preparation Checklist so you can prepare to prepare. eFile.com will then calculate your tax return and post these taxable income line items on your Form 1040, Schedule 1, Schedule C, and other applicable tax forms of your tax return (Schedule 1 is used to report additional income and adjustments to your income on your tax return).
See a comprehensive overview of federal taxable income.
W-2 Wage or Salary
Most taxpayers are wage or salary earners which is reported annually on a W-2 Form
. This type of income is simplest for taxpayers due to income taxes being withheld as well as Social Security and Medicare taxes. Report this income on your tax return when you e-file your taxes
Social Security Benefits
Is my Social Security income taxable?
If Social Security
is your only form of income, then it is generally not taxable. If you had income from other sources in addition to your Social Security benefits, it is possible that a portion of your benefits may be taxable. In general, your Social Security income will only be taxed if your combined income from all sources is more than a base amount determined by your filing status
. Additionally, disability income, perhaps from Social Security, is nontaxable income
Find out if your Social Security income may be taxable
Independent Contractor, Self-Employment
If you received independent contractor
income reported on a Form 1099
, you will need to include this on your tax return. Taxes are generally not withheld from this income, so you would have wanted to make estimated tax payments
during the tax year. Report your estimated payments when you are preparing your return so they can be included as payments towards your self-employment tax reported on Schedule SE.
Pension and Annuity Income
Pensions and annuities
are either fully taxable or partially taxable depending on your contributions. Your pension or annuity is fully taxable if all of the contributions were made by your employer prior to including it in your taxable wages or salary. Returns on payments made with after tax dollars are partially taxable. In that case, you will not be charged tax on the cost of the plan or investment but only on the non-taxed interest accrued in the pension or annuity.
Learn more about pension and annuity income
Tips and Gratuities
All tips that you receive on the job (for restaurant work, babysitting, delivery or valet services, etc.), whether or not the majority of your income is derived from tips or wages, is considered income and is subject to federal income tax. Non-cash tips in the form of gifts, tickets to sporting events, or other items of value are generally subject to federal income tax.
See details on how to report tip income
; you must report cash, check, or credit card tips to your employer so they can withhold Social Security, Medicare, retirement tax, or any other applicable taxes from your total tips. If you receive $20 or more in tip income in a single calendar month, you must report that income to your employer and they must withhold Social Security and Medicare taxes. If you do not make more than $20 in tips in a single month, you do not have to report the income to your employer, but you must report the income on your federal tax return.
Learn more in Publication 531: Reporting Tip Income
Interest earned from a savings account, e.g. money market, certificate of deposit CD, etc. is taxable income. Your financial institution or bank will send you a 1099-INT
form by January following a given tax year. Generally, interest earned under $10 is tax exempt, but it should be reported as interest from a savings account and is considered an addition to your taxable income for the year in which it is paid. When you prepare on eFile.com, you will be prompted where to enter the interest income; the tax app will then calculate your taxes for you.
If you received unemployment compensation
during the tax year, you will need to report it on your tax return. Unemployment compensation is not considered earned
income, but the IRS does consider it to be taxable income
, so will be included in your Adjusted Gross Income (AGI)
. You should receive Form 1099-G
reporting your unemployment compensation and this will be entered on the 1099-G form(s) in your eFile.com account. Total unemployment compensation is then reported on Schedule 1. Tax Tip
: You might receive separate 1099-G forms from your states if you collected unemployment from multiple states for any reason. Be sure to include and enter the information from all
your 1099-G forms when you prepare your return.
Qualified Dividend Income
Income tax rates will depend on if you have qualified dividend
or ordinary dividend
. Ordinary dividends are taxed
using the same standard IRS income tax rates, while qualified dividends are taxed at the same rate as the capital gains tax rate
, which are generally lower than ordinary income tax rates. Form 1099-DIV
is used by banks and financial institutions to report dividends and other distributions to taxpayers and to the IRS in January following a given tax year. During the tax interview on eFile.com, you can enter your dividend income and the tax app will calculate it accordingly.
Business income or (Loss)
If you earned income as a self-employed person
and operated a business, you will enter this income on the Your Business
form when you prepare your return on eFile.com. As a result of this, a Schedule C will be prepared for you and the total amount is then reported on the Schedule 1. You can view your draft return and see these amounts on your eFileIT Schedule C
Other Gains or (Losses)
If you sold (or exchanged) assets used in a business, you will report this income on eFileIT Form 4797
- Gains/Losses from Sales of Assets
when you prepare your return on eFile.com. This amount is then reported on your Form 4797 and your Schedule 1 on your prepared return.
Supplemental Income or Losses: Rental Real Estate, Royalties, Partnerships, S Corporations, Trusts, etc.
Any income earned from the rental of real estate, or royalties, are entered on the eFileIT Schedule E - Supplemental income - Rent, Royalties, etc.
form in your eFile.com account. These total amounts are then reported on Schedule 1.
Rental: Personal Property (not in the business of renting).
This is income from rental of your personal property (Airbnb, Vacation Home, etc.) and you gained a profit from it, but you were not in the business of renting the property. In your eFile.com account, you will enter this on your eFileIT Schedule E - Supplemental income - Rent, Royalties, etc.
Farm Income or (Loss)
Report your farm income in your eFile.com account so it can be generated on eFileIT Schedule F
, Credits, or Offsets of State and Local Income Taxes
Generally, you will need to report any refund, credit, or offset from state or local taxes
on your tax return. These are usually reported on Form 1099-G
which you can add in your account when you prepare your return on eFile.com. However, if you did not get a 1099-G form reporting refunds, credits, offsets, etc. you should report the amounts anyway. Your total 1099-G amounts are reported on your Schedule 1. More details on IRS, state or local refunds if they are taxable
- You do not have to pay tax on alimony received under a court order or decree made after December 31, 2018. In other words, if a divorce was finalized in 2022, then the alimony recipient no longer pays taxes on these payments. The alimony payer pays regular income taxes prior to making the alimony payments, meaning they are not tax deductible.
- If you receive alimony from your spouse or former spouse, you must report the alimony as income in the year that you receive it if you received the alimony under a decree or court order made on or before December 31, 2018.
Note that child support is not alimony and is nontaxable income.
If you make alimony payments during the tax year, they are only tax deductible if they are made under an official divorce decree made before 2019 and all of its qualifications are met. Payments that are not made under an official decree or agreement (e.g. a verbal consensus between two parents) are not tax deductible.
Learn more in Publication 504—Divorced or Separated Individuals.
Net Operating Loss
This amount is any Net Operating Loss
(NOL) from a previous year. A net operating loss (NOL) happens when a business owner or individual has more tax deductions than taxable income. In other words, the business has a negative income. A business owner may be able to take a NOL and move it to future tax years in which the business had a profit, and can then reduce his/her tax burden.
If you have any gambling winnings
, which includes winnings from a raffle, lottery, casino games, slot machines, sweepstakes, etc., you can enter them on the gambling form in your eFile.com account. The total will then be reported by the eFile Tax App on Schedule 1.
Since money and prizes won by gambling are considered income
and subject to federal income tax, you have to report all of your gambling winnings on your tax return. You must include all cash winnings and the fair market value of non-cash winnings as taxable income.
The IRS usually taxes those winnings at a flat 25% rate rather than at your income tax withholding rate. Since casinos, race tracks, fantasy sport websites, and other places of gambling are heavily regulated by the IRS, they are required to report your winnings on Form W-2G. If you have gambling losses, you may deduct your gambling losses if you itemize your deductions
. However, deductible gambling losses may not be greater than the gambling income reported on your return. In order to take deductions for your losses, the IRS requires you to obtain a statement from the institution with whom the losses were incurred. If you do not itemize deductions, you may subtract the standard deduction
from your taxable income when you prepare your tax return.
Learn more about taxes on gambling income
Cancellation of Debt
The IRS considers the cancellation of debit
as taxable income on your return. This is because any debts discharged in bankruptcy
are specifically excluded from your income under the income tax rules. If you have a cancellation of debt, you will receive a Form 1099-C
from one of the creditors whose debt was discharged in bankruptcy and you should enter the Form 1099-C information when preparing your return on eFile.com.
As a general rule, debt that is canceled or forgiven by an official lender is considered taxable income. For example, if you settle a credit card debt for less than the full balance, you will owe income tax on the amount that was forgiven. There are some circumstances in which the canceled debt may be excluded from your taxable income. If you received Form 1099-C (Cancelation of Debt) in relation to your main home, it may be nontaxable.
Certain student loans containing a provision that part or all of the debt incurred to attend a qualified college or university will be canceled if you work for a certain period of time in a certain profession.
Learn more in Publication 4681—Canceled Debts, Foreclosures, Repossessions, and Abandonments
Foreign Earned Income Exclusion
If you earned foreign income
, you might qualify for the Foreign Earned Income Exclusion which can exclude some of your income in addition to what you spend on housing from taxes. You can enter this information on eFileIT Form 2555
when you prepare your return on eFile.com.
Taxable Health Savings Account distribution
If you took any distributions from your Health Savings Account (HSA) or from an Archer MSA
, they are generally not reported your return unless spent on nonqualifed expenses. An Archer Medical Savings Account (or MSA) was a precursor to the current HSAs and both offer a way for people to have a tax advantaged way to save for medical expenses. HSAs and MSAs can only be used with high-deductible health plans (HDHPs). Archer MSAs are no longer created as of 2007, but existing MSAs are allowed to continue. Distributions from HSAs are reported to you on Form 8889 and Form 8853 for Archer MSAs and you can enter this on the Health Savings Account
form in your eFile.com account. See how to report additional tax on a qualified plan
for when you use certain savings accounts to pay for non qualified expenses or to report over-contributions to certain deductible plans.
Alaska Permanent Fund dividends
The Alaska Permanent Fund Dividend (PFD) is a dividend paid to Alaska residents that have lived within the state for a full calendar year and intend to remain an Alaska resident indefinitely. These dividends must be reported on your tax return. When you prepare your return on eFile.com, Alaska dividends are entered on the Form 1040—Income Section, on the bottom section of the screen, click on I would like to see other Unearned Income items, and you can enter the information under Alaska Permanent Fund. The resulting amount will then be reported on the Schedule 1.
Jury Duty Pay
If your employer paid your salary while you performed jury duty and you then paid your employer the amount you received for jury duty, this will be entered in your return and then reported on the Schedule 1.
When you exchange goods or services for other goods or services, you are required to include the value(s) as taxable income. The value of bartered goods and services is determined by the fair market value of an exchange between unrelated parties. The person you traded with should send you a Form 1099-B
reporting the fair market value of the goods or services. In addition, both of you have to report the information on separate Schedule C's; you report the value of your services while the other person reports the amount.
Prizes and Awards
Any amounts of money you received as a prize or award are generally reported to you on a 1099-MISC
and you can enter these amounts from the form in your account. It is then reported on the Schedule 1.
Activity Not Engaged in for Profit Income
This is income from an activity that you engage in whereby you do not intend to, or attempt to, make a profit from the activity. It is recommended that you review more on this in IRS Publication 535—Business Expenses
. This is reported on Schedule 1.
If you exercised any stock options during the tax year and earned income from this, you would be sent a 1099-B reporting the transaction and the monies earned from it. After you report it on the 1099-B, Stock Transactions and Sale of Assets form in your eFile.com account, the total amounts are reported on Schedule 1.
Income from Illegal Activities
Yes, income from illegal activities, like drug dealing, is taxable income. According to IRS Publication 17, Federal Income Tax Guide for Individuals
, taxpayers must report this income as self-employment activity and the eFile Tax App will report this on the 1040 form on line 8z or on Schedule C of the tax return. This also includes money or income from push money, kickbacks, side commissions, etc. as well as stolen property, including bank robbery, etc. This must be reported at its fair market value
as income in the year it was stolen, unless it was returned to the rightful owner in the same year.
Sale of Personal Items
Personal items such as jewelry, home goods, car, etc. must be reported via Schedule D as taxable gain if they are sold at a higher price than the purchasing price
. The eFile Tax App will guide you through this when you prepare your tax return. If a personal item is sold at a loss, that loss can not be deducted. Investment items or the sale of a home should be reported as capital gain and any loss is deductible as capital loss. During the eFile.com tax interview, enter the information requested. Found and kept property that doesn’t belong to the finder, e.g. was lost or abandoned (treasure trove), is taxable at fair market value in the first year of undisputed possession.
Olympic, Paralympic medals, USOC prize money
Any amounts of prize money you received as a result of your participation in the Olympic or Paralympic Games should be reported to you in Box 3 of Form 1099-MISC. You can enter this amount on the 1099-MISC form in your eFile.com account, and the resulting taxable amount will be reported on Schedule 1.
If you donate plasma and receive compensation for this, you may receive a tax form for this income. Regardless of if you receive the form, this is taxable income which needs to be reported on a tax return.
Section 951(a) Inclusion
This is related to a business return and since you can only prepare an individual return on eFile.com, it is not applicable here.
Section 461(l) Excess Business Loss Adjustment
This is related to a business return and since you can only prepare an individual return on eFile.com, it is not applicable here.
Taxable distributions from an ABLE account
ABLE (Achieving a Better Life Experience)
accounts are tax-advantaged savings and investment accounts for individuals with disabilities. If you received any taxable distributions from an ABLE account, they will be reported on your Schedule 1.
More Taxable Income Examples
Your gross income generally includes income from all sources, in whatever form it takes. You can read this detailed PDF file for an in-depth overview of taxable income. Below are other taxable categories; this list is thorough, but not comprehensive.
- Employee back pay from the previous tax year
- Bonuses and benefits from employers: These are considered supplemental wages taxed at a flat 28% rate. Be aware that you also have to pay state and local taxes on this as well as Social Security and Medicare. If your employer paid for an online course or other educational service, you can exclude up to $5,250 of the expenses. Since your employer does not report the benefits with your wages and other compensation, you do not need to report the benefits on your tax return. You will need to pay tax on any expenses over $5,250, which your employer will report on your W-2.
- Cashed out vacation or sick time
- Clergy pay
- Compensation for personal services
- Director’s fees
- Disability benefits (employer-funded)
- Donating eggs to infertile couples: If you received money for donating your eggs to a fertility clinic, the IRS will tax that payment. You should receive a 1099 form from the clinic that sent you the payment.
- Employee awards
- Employee bonuses
- Estate and trust income
- Exchanges of policyholder interest for stock
- Fantasy sport winnings or sports betting: Any money you win from fantasy sport leagues (including private ones) or betting on games is considered taxable gambling income. You should receive a Form 1099-MISC reporting at least $600 of winnings from any fantasy sports or betting website. If you have any losses, such as entry fees in leagues you did not win, or if you lost bets, you can deduct the losses against your gains if they happened within the same year.
- Farm income
- Gains from sale of property or securities
- Gifts from employer: If you received a non-monetary gift from an employer rewarding you for the work you have done for a company, you may be taxed on that gift.
- Hobby income
- Lawsuit settlements: If you win a lawsuit, you may need to pay taxes on your settlement based on the damages you have suffered.
- Loans forgiven: Any forgiven loans you have received from the federal government or a private company must be reported as income on your tax return. You do not have to report any loans from relatives or friends since they are considered gifts.
- Nobel Peace Prize money: The IRS requires you to pay taxes on any money you received for winning the Nobel Peace Prize or Pulitzer Prize, unless you donate the payment to a tax-exempt charity before receiving it. However, if you accept the money and give it to charity, you may have to pay taxes on some of the income since you can only deduct up to 50% of your adjusted gross income for charitable purposes.
- Payments earned for donating eggs to infertile couples
- Lump sum distributions
- Misc. Fees
- Non-employee compensation
- Notary fees
- Online personal fundraising sites (GoFundMe, Kickstarter, etc.) - see below
- Partnership, Estate and S-Corporation income (Schedule K-1s, Taxpayer’s share)
- Punitive damage
- Railroad retirement
- Severance pay
- Signing or sign on bonuses: Many employers offer a signing bonus when hiring a new employee. This bonus is still taxable income that is subject to all regular federal and applicable state taxes as income. Depending on when you receive this check, taxes may or may not be withheld from it.
- Treasure, buried: If you found buried money or sold an antique table you saw in a deserted area, you must report that income to the IRS. This rule has been in place since 1954 when a couple earning $4,467 for selling a used piano they purchased for $15 had to pay taxes on it; a U.S. District Court agreed to the IRS requirement.
- See more details on taxable income.
Income That May or May Not Be Taxable
Some income may be taxable under certain circumstances, but not taxable in other situations. Examples of items that may or may not be included in your taxable income are:
- Venmo, CashApp, PayPal, or Other Third-Party Transaction Apps: Is the IRS taxing Venmo or PayPal transactions of $600 or more? Is the IRS monitoring my bank account? As of 2022, you will receive a Form 1099-K if you receive at least $600 and this will need to be reported on a tax return. Person-to-person transactions do not fall into this—for example, if you pay a friend back for dinner—but business or business-like transactions do. For details and examples, see this page and find the section under IRS $600 Bank Surveillance.
- GoFundMe, Kickstarter, or Other Personal fundraising Websites: These sites have become increasingly popular. Income from one of these sites can be considered either income or a gift. For campaigns that raise at least $20,000 and have 200 transactions, the income must be reported to the IRS. Gifts are considered non-taxable income, but if the gift creates notable income, that income would be taxable. Note: It is possible that these fundraising platforms will see similar treatment to third-party transactions platforms, meaning you may receive a Form 1099-K for making $600 or more instead of $20,000.
- Life insurance: If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds, which were paid to you because of the insured person’s death, are generally not taxable unless the policy was turned over to you for a price.
- Scholarship or fellowship grant: If you are a candidate for a degree, you can exclude from your income amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify for such an exclusion.
- Non-cash income: Taxable income may be in a form other than cash. One example of this is bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties.
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