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. There is also nontaxable income that does not get reported on your tax return.
Below are examples of taxable income to consider when determining whether a tax return must be filed - compare these to the types of tax-free income. 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.
If you have any confusion about the online tax preparation process, we recommend using the eFile Tax App, where our taxation experts will guide you through the entire process.
Related Article: Where to retire for nontaxable retirement income?
What Types of Income Are Taxable?
Income in the form of money in exchange for services, goods, and property (sale of a home, even if it can be excluded) a taxpayer received is generally considered gross income, unless the income is excluded from taxes.
As part of your gross income, your W-2 income gets reported on your Form 1040. Additionally, gains should be included and reported on Form 8949 (Sale, Dispositions of Capital Assets) or Schedule D and losses should not be excluded. Business income and losses are generally reported on Schedule C. Why worry about these complicated forms you might need? Get your taxes done and eFile.com and let the tax app generate and fill in all the forms for you based on simple data entries.
Is Social Security Income Taxable?
Social Security benefits are generally not taxable, unless:
A: You are filing a separate return and the taxpayer lived with the spouse at any time during the 2023 tax year.
B: If one-half of your social security income plus your other gross income and any tax-exempt interest (yes, tax-exempt interest, it is stated like this in publication 501) is more than certain limits - see the Social Security page for details.
In case A or B applies to you, start a free return before you efileIT to determine the taxable portion of social security income or benefits. These calculations can get complicated, but eFile does it for you. See more details about Social Security income and taxes.
Key Points
- Taxable income is the portion of your total income that is subject to taxation by the IRS. It includes wages, salaries, tips, self-employment earnings, bonuses, commissions, and income from investments like dividends and interest.
- In addition to regular employment income, taxable income encompasses earnings from freelance work, rental income, pensions, and retirement account distributions. Certain benefits like unemployment compensation and some scholarships may also be taxable.
- All sources of income must be reported on your tax return, regardless of whether they are taxable or not. This includes income earned abroad, income from investments, and any other sources.
- The IRS allows certain deductions and exclusions that can reduce your taxable income. These may include deductions for student loan interest, contributions to retirement accounts like IRAs or 401(k)s, and deductions for eligible business expenses.
- Tax credits directly reduce the amount of tax you owe. They are typically more valuable than deductions because they decrease your tax bill dollar-for-dollar. Examples include the Earned Income Tax Credit (EITC) and the Child Tax Credit.
Below, find more details about 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 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.
See detailed information about taxable and gross income.
How to File Taxes Online?
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).
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 to estimate your taxes and find out how you are being taxed before you prepare and eFileIT: IT is Income Taxes!
See a comprehensive overview of Federal Taxable Income.
What Income Is Considered Taxable?
W-2 Wage or Salary
Most taxpayers report wages on a
W-2 Form, with taxes withheld for income, Social Security, and Medicare. Report this income when e-filing at eFile.com.
Social Security Benefits
Is my Social Security income taxable? If Social Security is your only income, it’s generally not taxable. However, if combined with other income, it may be taxable based on your
filing status. Disability income is typically nontaxable.
Find out if your
Social Security income may be taxable.
Retirement Plan Income
Retirement plan distributions are generally taxable unless from a Roth IRA or Designated Roth Account. Early withdrawals are taxable and may incur a 10% penalty; find out about
penalties for early withdrawal.
Pension and Annuity Income
Pensions and annuities are fully or partially taxable depending on contributions. If fully employer-funded, they are fully taxable; returns on after-tax contributions are taxed only on interest.
Learn more about
pension and annuity income.
Tips and Gratuities
All
tips received, cash or non-cash, are subject to federal income tax. If you receive $20 or more in a month, report it to your employer for tax withholding; otherwise, report it on your tax return.
Learn how to report tip income in Publication 531:
Reporting Tip Income.
Interest Income
Interest earned from savings accounts (e.g., CDs) is taxable. Your bank will send a
1099-INT or
1099-OID by January following the tax year. Interest under $10 is tax-exempt but should still be reported. When preparing on eFile.com, you'll be prompted to enter this income for tax calculation.
Unemployment compensation
Report
unemployment compensation on your tax return. It’s not considered
earned income but is
taxable income and included in your
AGI. You should receive Form
1099-G for this; total compensation is reported on Schedule 1.
Tax Tip: Include all 1099-G forms if received from multiple states.
Qualified Dividend Income
Income tax rates depend on whether dividends are
qualified or
ordinary.
Ordinary dividends are taxed at standard IRS rates, while qualified dividends are taxed at capital gains rates, which are generally lower. Form
1099-DIV reports dividends to taxpayers and the IRS in January. Enter your dividend income during the tax interview on eFile.com for accurate calculation.
Capital Gains Income
Capital gains are taxed on profits from selling assets like stocks or real estate, with rates depending on the holding period. Short-term gains are taxed at ordinary rates, while long-term gains enjoy lower rates. Read more about
how to report capital gains on eFile.com.
Business Income or (Loss)
If you earned income as a
self-employed person, enter this on the
Your Business form on eFile.com. A Schedule C will be prepared, and the total is reported on Schedule 1. View your draft return and amounts on your
eFileIT Schedule C.
Other Gains or (Losses)
Report gains from selling (or exchanging) business assets on
eFileIT Form 4797 -
Gains/Losses from Sales of Assets. This amount is reported on your
Form 4797 and Schedule 1.
Farm Income or (Loss)
Report your farm income in your eFile.com account so it can be generated on
eFileIT Schedule F.
Taxable Refunds, 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 to 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.
Alimony received
- 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 after 2018, 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 received 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.
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 an NOL and move it to future tax years in which the business had a profit and can then reduce his/her tax burden.
Gambling income
Report all gambling winnings, including cash and non-cash prizes, as income on your tax return. The IRS typically taxes these at a flat 25% rate. Gambling losses may be deductible if you
itemize deductions, but cannot exceed reported winnings. You may also take the
standard deduction if you don’t itemize. Learn more about
taxes on gambling income.
Taxable Health Savings Account Distribution
Distributions from your
HSA or Archer MSA are generally taxable if spent on nonqualified expenses. Report these using Form 8889 for HSAs or Form 8853 for MSAs. See
how to report additional tax.
Alaska Permanent Fund dividends
The Alaska Permanent Fund Dividend (PFD) must be reported on your tax return. Enter it on Form 1040—Income Section under Alaska Permanent Fund.
Jury Duty Pay
If your employer paid your salary during jury duty and you returned the amount received, report this on Schedule 1.
Bartering Income
Bartered goods or services must be reported as taxable income based on fair market value. You should receive a Form
1099-B.
Prizes and Awards
Prizes and awards are reported on a
1099-MISC and entered on Schedule 1.
Activity Not Engaged in for-Profit Income
Report income from activities not intended for profit on Schedule 1.
Stock Options
If you exercised stock options, report this on Form 1099-B, which is then entered on Schedule 1.
Income from Illegal Activities
Income from illegal activities, including drug dealing, is taxable. Report this as self-employment income per
IRS Publication 17.
Sale of Personal Items
Report gains from selling personal items via Schedule D if sold for more than the purchase price. Losses on personal items are not deductible.
Olympic, Paralympic medals, USOC prize money
Any prize money you received due to 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.
Plasma Donation
If you donate plasma and receive compensation for this, you may receive a tax form for this income. Regardless of whether you receive the form, this taxable income must 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.
What Are 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.
- Awards
- 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 must pay tax on expenses over $5,250, which your employer will report on your W-2.
- Cashed out vacation or sick time
- Clergy pay
- Commissions
- Compensation for personal services
- Director’s fees
- Disability benefits (employer-funded)
- Discounts
- Donating eggs to infertile couples: If you received money for donating your eggs to a fertility clinic, the IRS would 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 sports winnings or sports betting: Any money you win from fantasy sports 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 lost bets, you can deduct the losses against your gains if they happened within the same year.
- Farm income
- Gains from the sale of property or securities
- Gifts from employer: If you received a non-monetary gift from an employer rewarding you for your work for a company, you may be taxed on that gift.
- Hobby income
- Interest
- 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 receive 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)
- Prizes
- Punitive damage
- Railroad retirement
- Rewards
- Royalties
- 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.
How to Tell if Income Is Taxable?
Some income may be taxable under certain circumstances but not taxable in other situations.
- 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? You may receive a Form 1099-K if you receive at least $20,000 for 2023 and prior, $5,000 in 2024, and potentially just $600 in 2025, which 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. The IRS is not monitoring your bank account for $600 transactions.
- GoFundMe, Kickstarter, or Other Personal fundraising portals: Income from a campaign on one of these sites can be considered either income or a gift. Gifts are considered non-taxable income under a certain amount, but if the gift creates notable income, that income would be taxable. If enough money is raised, then a 1099-K or other tax form may be sent.
- 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 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 amounts you receive as a qualified scholarship or fellowship from your income. 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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