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What is Unearned Income?

Unearned Income

You may be wondering: are my investments taxable? Are my gambling winnings taxed? How do I file my rental income?

Types of Unearned Income

The table below shows the various kinds of unearned income accompanied by a brief description. You can use this information to understand your tax situation in order to prepare for Tax Day. In comparison here is a list of earned income. Use the FILEucator to find out if you have to file taxes based on how much you made of unearned income.

Type
Description
Interest
Interest accrues often from investments, such as stocks. These may come on a regular basis throughout the year, like a monthly interest payment. When you receive interest, it is often reported on Form 1099-INT for a given tax year.
Similar to interest, dividends are paid to you for your investments. When you are a stockholder of a company, they made opt to pay you dividends. You can reinvest those dividends once received if you choose - they are typically small payments. You may receive a 1099-DIV reporting your dividends for the tax year.
If you receive unemployment benefits during the year while you are looking for work, you should receive a 1099-G reporting this income. Unemployment income is generally taxable and should be reported on your income tax return.
When you begin receiving your Social Security benefits at a certain age, you will receive Form SSA-1099 reporting the amounts of your payments. If you have other income, your benefits may be taxed - generally, if Social Security is your only income, it is likely not taxable income.
If you have forgiven debt in a given year, you should receive Form 1099-C reporting this unearned income. This amount is often taxable as part of an agreement to settle or forgive your debt for a loan, such as a credit card.
Retirement payments are considered unearned income; these are payments from Individual Retirement Accounts (IRAs), pensions, or other retirement plans. These amounts are reported via Form 1099-R and should be included on your tax return.
When you win money from gambling, whether it be from the lottery, scratch cards, or casino, the income is typically taxable and reported to you on Form W-2G. Don't get this confused with Form W-2 which reports earned income from wage or salary jobs!
Alimony and child support payments are usually direct payments from person-to-person and are not considered earned income. These payments may or may not be taxable depending on when the agreement for the payments was finalized - see the linked page for specific details.
Rental Payments
If you rent out your property (land, home, etc.) and receive income for this, you will report this unearned income on your tax return. For rental income in a given tax year, eFileIT IRS Schedule E.
Gifts in the form of cash or currency above a certain amount may be taxable, unearned income. This gift can be from family for a holiday or other scenarios as long as it is a cash gift given for nothing in exchange. View the linked page for details - keep track of your gift amount and consider the tax implications of it.
Veteran' Benefits
Services likes pensions, home loans, life insurance, education, healthcare, and disability compensation provided by the Veterans Benefits Administration may count as unearned income. This is income from certain programs for a taxpayer's service in the American Armed Forces - see details on military and taxes and review IRS Publication 3, Armed Forces' Tax Guide.

Report your unearned income on eFile.com - sign up for a free account here.

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