Taxation: Defining Income FAQs

Most people have to pay federal income taxes. The amount that we have to pay is largely based on how much income we make in a year. Therefore, what constitutes "income" for tax purposes will have a great effect on our taxes. The Internal Revenue Service (IRS) offers guidelines to help you understand what's taxable income. Here are some frequently asked questions about defining income for tax purposes.


Q: I receive alimony payments from my ex-husband. Do I have to count this money as "income" for tax purposes?

  • Yes, money given to you for your support from your ex-spouse is considered taxable income.


Q: I receive child support payments from my ex-wife to help pay for the costs of our children. Do I have to count this money as "income" for tax purposes?

  • No, you don't have to include child support payments in your taxable income.


Q: I was the beneficiary under a family member's life insurance policy. Do I have to report the proceeds as taxable income?

  • No, you usually don't have to report life insurance proceeds as income on your tax return.


Q: I received a large monetary gift from my grandmother. Do I treat this money as income for tax purposes?

  • No, you generally don't include gifts in your taxable income.


Q: Do I have to treat interest I earned from a monetary gift as taxable income?

  • Yes, any interest from a monetary gift must be treated as income, even if the gift itself isn't taxable.


Q: I receive long-term disability from an insurance plan through my employer. Is this money considered taxable income?

  • You don't have to report the monetary amount for your disability if you pay for the entire insurance plan yourself. However, if your employer pays all or part of the insurance plan cost, you have to report as income the disability payments you receive that are due to the payments from your employer.


Q: I received a scholarship for a private college. Do I have to pay taxes on this amount?

  • You usually don't have to pay taxes on a qualified scholarship if it's used for tuition or educational fees. Educational fees include supplies, books and required equipment. However, you must be a candidate at an educational institution for a degree.


Q: Do I have to report my student loans as income on my tax return?

  • No, since you have to pay back the borrowed money. You do have to report as income any part of the loan that's forgiven later since you wouldn't have to pay back that part of the loan.


Q: I was awarded money after I settled an employment discrimination lawsuit. Is this money considered taxable income?

  • Yes, money from an employment discrimination settlement is generally considered income for tax purposes.


Q: I was awarded money after I settled a physical injury lawsuit. Is this money considered taxable income?

  • You generally don't have to report money from a settlement for physical sickness or injuries. However, you have to report the money as income if you deducted medical expenses that were related to the injury.


Q: Are any tips that I receive at work considered income for tax purposes?

  • Yes, tips that you receive at work are considered taxable income.


Q: I won a large amount of money gambling this year. Do I have to report this money as income?

  • You have to report any gambling winnings on your tax return.


Q: If I sell inherited property, do I have to report the money as taxable income?

  • You have to report any taxable gain if you sell the property for more money than your basis in the property. Your basis is usually the fair market value of the property at the time the decedent died.



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