In general, most income you receive during the year must be reported on your federal income tax return. Most income you receive is reported to the IRS by third parties who pay you. You must receive a copy of the documents supplied to the IRS on your behalf, but if you don’t it’s still your responsibility to report income amounts you receive during the year.
Wages you receive as an employee count as income on your taxes. Wages include compensation reported on the W-2 statement you receive at the end of the year and include wages, salaries, tips, sick pay and certain fringe benefits. If you elect wage deferrals for items such as retirement plan contributions or employer-sponsored health insurance, some of your income may not be taxable and is not reflected in your gross W-2 wages.
IRA Distributions and Retirement
Distributions you take from a retirement plan are considered income and must be reported on your income tax return. This is true whether the distribution is a normal retirement payment or an early withdrawal. A 1099-R is sent to you at the end of the year from your plan administrator if you receive retirement funds. Early distributions may be subject to an additional 10 percent withdrawal penalty.
Interest and Dividends
Interest you receive from bank accounts and corporate dividends you receive from corporate interests held are also income that must be reported on your tax return. If you receive dividends, a 1099-DIV is provided from the corporation paying the dividends. If you receive interest income, a 1099-INT will be sent to you from the bank. Be aware that the value of new account gifts is reported as interest income by the financial institution supplying the gift.
If you receive alimony as a result of a divorce settlement, you must report the amount received as income. Taxable alimony payments include physical payments made in cash or by check, as well as the value of other payments as defined as alimony in the divorce decree. Those who make the alimony payments are allowed a deduction for the payments. Child support payments received under any order are not taxable, nor deductible. Do not report any amounts received or paid for child support.
Social Security Benefits
Social Security benefits are also considered taxable, but only a percentage of the income may be taxable. Determining the amount of Social Security income subject to taxes depends on your filing status and combined total of Social Security and other sources of income. Regardless of the taxable amount, the full amount received must be reported. You will receive a 1099-SSA at the end of the year that summarizes the benefits you receive during the year.
Unemployment compensation you receive is income. Your state unemployment insurance office supplies a 1099-G to you that lists the total amount of compensation you received. You must report the full amount; however in 2009, only amounts over $2,400 were subject to income tax. In addition, when you apply for unemployment, you can elect to have federal income tax withheld from your compensation. If you made this election, be sure to include the withholding amount withheld in the “payments” section of your return.
Self-employment and Rental Income
If you are self-employed or have rental income during the year, your net income is subject to income tax. You must report the gross amount received from your business or rental activities and subtract eligible expenses to determine your net income. Self-employment net profits over $400 are also subject to self-employment taxes in addition to income tax.
Certain other types of income you receive during the year are also considered income that must be reported. Examples of miscellaneous income include gambling winnings, canceled debt income, hobby income and the value of prizes.