Taxable and Nontaxable Income
IRS Tax Tip 2013-12, February 12, 2013
Most types of income are taxable, but some are not. Income can include money, property or services that you receive. Here are some examples of income that are usually not taxable:
- Child support payments;
- Gifts, bequests and inheritances;
- Welfare benefits;
- Damage awards for physical injury or sickness;
- Cash rebates from a dealer or manufacturer for an item you buy; and
- Reimbursements for qualified adoption expenses.
Some income is not taxable except under certain conditions. Examples include:
- Life insurance proceeds paid to you because of an insured person’s death are usually not taxable. However, if you redeem a life insurance policy for cash, any amount that is more than the cost of the policy is taxable.
- Income you get from a qualified scholarship is normally not taxable. Amounts you use for certain costs, such as tuition and required course books, are not taxable. However, amounts used for room and board are taxable.
All income, such as wages and tips, is taxable unless the law specifically excludes it. This includes non-cash income from bartering - the exchange of property or services. Both parties must include the fair market value of goods or services received as income on their tax return.
If you received a refund, credit or offset of state or local income taxes in 2012, you may be required to report this amount. If you did not receive a 2012 Form 1099-G, check with the government agency that made the payments to you. That agency may have made the form available only in an electronic format. You will need to get instructions from the agency to retrieve this document. Report any taxable refund you received even if you did not receive Form 1099-G.
For more information and examples, see Publication 525, Taxable and Nontaxable Income. The booklet is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
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Page Last Reviewed or Updated: 22-Nov-2013
Reporting on Lottery Winnings
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If you receive substantial winnings from the lottery, you can expect to receive a W-2G form from the lottery. Similar to a W-2 from work, both the IRS and you get a copy of it, and it reports out how much you won. You will receive a W-2G if you win at least $600 and your winnings are at least 300 times the cost of your ticket. If you win less than this amount, the lottery will not report your winnings to the IRS. The W-2G will report your net winnings, so, if you spend $1 on a ticket that wins you $10,000, the W-2G will show winnings of $9,999. For smaller prizes, many lottery players pocket the cash from a ticket that pays $10 or $100. In fact, that income is still technically taxable, even though the IRS receives no report it.
https://www.irs.gov/uac/reporting-miscellaneous-income
Gambling winnings
Gambling winnings are fully taxable and must be reported on Form 1040.
Gambling income includes, among other things, winnings from lotteries, raffles, horse races, poker tournaments and casinos. It includes cash winnings as well as the fair market value of prizes such as cars and trips.
Even if a W-2G is not issued, all gambling winnings must be reported as taxable income regardless of whether any portion is subject to withholding. In addition, taxpayers may be required to pay an estimated tax on the gambling winnings.
Losses may be deducted only if the taxpayer itemizes deductions and only if he or she also has gambling winnings. The losses deducted may not be more than the gambling income reported on the return.
Prizes and awards
Subject to certain exceptions, the cash value of prizes or awards won in a drawing, quiz show program, beauty contest, or other event, must be included on the tax return as taxable income.
Taxpayers must also report the fair market value of merchandise or products won as a prize or award, as taxable income.
For example, both a $500 cash prize and the fair market value of a new range won in a baking contest must be reported as other income on Form 1040, Line 21.
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