Site icon

What Income Are You Required to Pay Tax On?

In general, income can be received in three ways – money, services, and property – and IRS requires you to declare most of this income on your tax return. Income is taxable unless specifically exempted by law, and in some cases, even nontaxable income must be disclosed on your tax return.

Taxable Income

Typically, the following types of income are required to be declared on your tax return, and you must pay tax on them:

Keep in mind that there are other forms of compensation that may be taxable, including fringe benefits or stock options. Fringe benefits are part of your income unless they are specifically excluded by law – or, if you pay fair market value for them. You do not need to be an employee of the provider of such a benefit to be a recipient, and if you perform the services for which a fringe benefit is being provided, you are the recipient and required to report/pay tax on it as applicable, even if it is given to another person and not you (for example, a family member). Examples could include:

Nontaxable Income

 The following types of income are usually deemed nontaxable by IRS and aren’t required to be reported on your tax return:

Other Considerations

There are some types of income that may or may not be taxable, or may be partially taxable. Examples include proceeds from cashing in a life insurance policy or money from a qualified scholarship, depending on how it was used. Income from retirement accounts may also fall into this category. Consult with your tax professional to determine how much of such income should be included on your tax return, if any.

For more information, please refer to IRS Publication 525, Taxable and Nontaxable Income: 2022 Publication 525 (irs.gov)

Exit mobile version