Advance commissions and other earnings.

If you receive advance commissions or other amounts for services to be performed in the future and you're a cash-method taxpayer, you must include these amounts in your income in the year you receive them.

If you repay unearned commissions or other amounts in the same year you receive them, reduce the amount of unearned commissions included in your income by the repayment. If you repay them in a later tax year, you can deduct the repayment as an itemized deduction on your Schedule A (Form 1040), Other Itemized Deductions, line 16, or you may be able to take a credit for that year. See Repayments, later.

Allowances and reimbursements.

If you receive travel, transportation, or other business expense allowances or reimbursements from your employer, see Pub. 463.

Back pay awards.

Include in income amounts you're awarded in a settlement or judgment for back pay. These include payments made to you for damages, unpaid life insurance premiums, and unpaid health insurance premiums. They should be reported to you by your employer on Form W-2.

Bonuses and awards.

Bonuses or awards you receive for outstanding work are included in your income and should be shown on your Form W-2. These include prizes such as vacation trips for meeting sales goals. If the prize or award you receive is goods or services, you must include the FMV of the goods or services in your income. However, if your employer merely promises to pay you a bonus or award at some future time, it isn’t taxable until you receive it or it’s made available to you.

Employee achievement award.

If you receive tangible personal property (other than cash, a gift certificate, or an equivalent item) as an award for length of service or safety achievement, you must generally exclude its value from your income. However, the amount you can exclude is limited to your employer's cost and can’t be more than $1,600 ($400 for awards that aren’t qualified plan awards) for all such awards you receive during the year. Your employer can tell you whether your award is a qualified plan award. Your employer must make the award as part of a meaningful presentation, under conditions and circumstances that don’t create a significant likelihood of it being disguised pay.

However, the exclusion doesn’t apply to the following awards.

Differential wage payments.

This is any payment made by an employer to an individual for any period during which the individual is, for a period of more than 30 days, an active duty member of the uniformed services and represents all or a portion of the wages the individual would have received from the employer for that period. These payments are treated as wages and are subject to income tax withholding, but not FICA or FUTA taxes. The payments are reported as wages on Form W-2.

Government cost-of-living allowances.

Most payments received by U.S. Government civilian employees for working abroad are taxable. However, certain cost-of-living allowances are tax free. Pub. 516 explains the tax treatment of allowances, differentials, and other special pay you receive for employment abroad.

Nonqualified deferred compensation plans.

Your employer will report to you the total amount of deferrals for the year under a nonqualified deferred compensation plan. This amount is shown in Form W-2, box 12, using code Y. This amount isn’t included in your income.

However, if at any time during the tax year, the plan fails to meet certain requirements, or isn’t operated under those requirements, all amounts deferred under the plan for the tax year and all preceding tax years are included in your income for the current year. This amount is included in your wages shown in Form W-2, box 1. It’s also shown in Form W-2, box 12, using code Z.

Nonqualified deferred compensation plans of nonqualified entities.

In most cases, any compensation deferred under a nonqualified deferred compensation plan of a nonqualified entity is included in gross income when there is no substantial risk of forfeiture of the rights to such compensation. For this purpose, a nonqualified entity is one of the following.

Note received for services.

If your employer gives you a secured note as payment for your services, you must include the FMV (usually the discount value) of the note in your income for the year you receive it. When you later receive payments on the note, a proportionate part of each payment is the recovery of the FMV that you previously included in your income. Don’t include that part again in your income. Include the rest of the payment in your income in the year of payment.

If your employer gives you a nonnegotiable unsecured note as payment for your services, payments on the note that are credited toward the principal amount of the note are compensation income when you receive them.

Severance pay.

You must include in income amounts you receive as severance pay and any payment for the cancellation of your employment contract.

Severance payments are subject to social security and Medicare taxes, income tax withholding, and FUTA tax.

Severance payments are wages subject to social security and Medicare taxes. As noted in section 15 of Pub. 15, Special Rules for Various Types of Services and Payments, severance payments are also subject to income tax withholding and FUTA tax.

Accrued leave payment.

If you're a federal employee and receive a lump-sum payment for accrued annual leave when you retire or resign, this amount will be included as wages on your Form W-2.

If you resign from one agency and are reemployed by another agency, you may have to repay part of your lump-sum annual leave payment to the second agency. You can reduce gross wages by the amount you repaid in the same tax year in which you received it. Attach to your tax return a copy of the receipt or statement given to you by the agency you repaid to explain the difference between the wages on your return and the wages on your Forms W-2.

Outplacement services.

If you choose to accept a reduced amount of severance pay so that you can receive outplacement services (such as training in résumé writing and interview techniques), you must include the unreduced amount of the severance pay in income.

Sick pay.

Pay you receive from your employer while you're sick or injured is part of your salary or wages. In addition, you must include in your income sick pay benefits received from any of the following payers.

Social security and Medicare taxes paid by employer.

If you and your employer have an agreement that your employer pays your social security and Medicare taxes without deducting them from your gross wages, you must report the amount of tax paid for you as taxable wages on your tax return. The payment is also treated as wages for figuring your social security and Medicare taxes and your social security and Medicare benefits. However, these payments aren’t treated as social security and Medicare wages if you're a household worker or a farm worker.

Stock appreciation rights.

Don’t include a stock appreciation right granted by your employer in income until you exercise (use) the right. When you use the right, you're entitled to a cash payment equal to the FMV of the corporation's stock on the date of use minus the FMV on the date the right was granted. You include the cash payment in income in the year you use the right.

Digital assets.

If your employer gives you digital assets (such as Bitcoin) as payment for your services, you must include the FMV of the digital assets as of the date(s) of receipt in your income. The FMV of digital assets paid as wages is subject to federal income tax withholding, Federal Insurance Contribution Act (FICA) tax, and Federal Unemployment Tax Act (FUTA) tax and must be reported on Form W-2. Notice 2014-21, 2014-16 I.R.B. 938, describes how digital assets are treated for federal tax purposes and is available at IRS.gov/irb/2014-16_IRB#NOT-2014-21. For further information, see IRS.gov/DigitalAssets.

Recipient of fringe benefit.

You're the recipient of a fringe benefit if you perform the services for which the fringe benefit is provided. You're considered to be the recipient even if it’s given to another person, such as a member of your family. An example is a car your employer gives to your spouse for services you perform. The car is considered to have been provided to you and not to your spouse.

You don’t have to be an employee of the provider to be a recipient of a fringe benefit. If you're a partner, a director, or an independent contractor, you can also be the recipient of a fringe benefit.

Provider of benefit.

Your employer or another person for whom you perform services is the provider of a fringe benefit regardless of whether that person actually provides the fringe benefit to you. The provider can be a client or customer of an independent contractor.

Accounting period.

You must use the same accounting period your employer uses to report your taxable noncash fringe benefits. Your employer has the option to report taxable noncash fringe benefits by using either of the following rules.

You must use the same accounting period that you use to report the benefit to claim an employee business deduction (for example, use of a car).

Form W-2.

Your employer must include all taxable fringe benefits in Form W-2, box 1, as wages, tips, and other compensation, and, if applicable, in boxes 3 and 5 as social security and Medicare wages. Although not required, your employer may include the total value of fringe benefits in box 14 (or on a separate statement). However, if your employer provided you with a vehicle and included 100% of its annual lease value in your income, the employer must separately report this value to you in box 14 (or on a separate statement).

Employee stock options aren’t subject to Railroad Retirement Tax.

In Wisconsin Central Ltd. v. United States, 138 S. Ct. 2067, the U.S. Supreme Court ruled that “money remuneration” is “currency issued by a recognized authority as a medium of exchange,” and that employee stock options aren’t “money remuneration” subject to the Railroad Retirement Tax Act (RRTA). Tier 1 and Tier 2 taxes aren’t withheld when employees covered by the RRTA exercise stock options. Federal income tax must still be withheld on taxable compensation from railroad employees exercising their options. If you receive an option to buy or sell stock or other property as payment for your services, you may have income when you receive the option (the grant), when you exercise the option (use it to buy or sell the stock or other property), or when you sell or otherwise dispose of the option or property acquired through exercise of the option. The timing, type, and amount of income inclusion depend on whether you receive a nonstatutory stock option or a statutory stock option. Your employer can tell you which kind of option you hold.

Substantially vested.

Property is substantially vested when:

Transferable property.

Property is transferable if you can sell, assign, or pledge your interest in the property to any person (other than the transferor), and if the person receiving your interest in the property isn't required to give up the property, or its value, if the substantial risk of forfeiture occurs.

Substantial risk of forfeiture.

Generally, a substantial risk of forfeiture exists only if rights in property that are transferred are conditioned, directly or indirectly, on the future performance (or refraining from performance) of substantial services by any person, or on the occurrence of a condition related to a purpose of the transfer if the possibility of forfeiture is substantial.

Choosing to include in income for year of transfer.

You can choose to include the value of restricted property at the time of transfer (minus any amount you paid for the property) in your income for the year it's transferred. If you make this choice, the substantial vesting rules don't apply and, generally, any later appreciation in value isn't included in your compensation when the property becomes substantially vested. Your basis for figuring gain or loss when you sell the property is the amount you paid for it plus the amount you included in income as compensation.

.If you make this choice, you can't revoke it without the consent of the IRS. Consent will be given only if you were under a mistake of fact as to the underlying transaction. .

If you forfeit the property after you have included its value in income, your loss is the amount you paid for the property minus any amount you realized on the forfeiture.

How to make the choice.

You make the choice by filing a written statement with the Internal Revenue Service Center where you file your return. You must file this statement no later than 30 days after the date the property was transferred. Mail your statement to the address listed for your state under “Are requesting a refund or aren’t enclosing a check or money order...” given in Where Do You File in the Instructions for Forms 1040 and 1040-SR. You must give a copy of this statement to the person for whom you performed the services and, if someone other than you received the property, to that person.

You must sign the statement and indicate on it that you're making the choice under section 83(b) of the Internal Revenue Code. The statement must contain all of the following information.

Dividends received on restricted stock.

Dividends you receive on restricted stock are treated as compensation and not as dividend income. Your employer should include these payments on your Form W-2. If they are also reported on a Form 1099-DIV, you should list them on Schedule B (Form 1040), with a statement that you have included them as wages. Don’t include them in the total dividends received.

Stock you chose to include in your income.

Dividends you receive on restricted stock you chose to include in your income in the year transferred are treated the same as any other dividends. You should receive a Form 1099-DIV showing these dividends. Don’t include the dividends in your wages on your return. Report them as dividends.

Sale of property not substantially vested.

These rules apply to the sale or other disposition of property that you didn't choose to include in your income in the year transferred and that isn't substantially vested.

If you sell or otherwise dispose of the property in an arm's-length transaction, include in your income as compensation for the year of sale the amount realized minus the amount you paid for the property. If you exchange the property in an arm's-length transaction for other property that isn't substantially vested, treat the new property as if it were substituted for the exchanged property.

The sale or other disposition of a nonstatutory stock option to a related person isn't considered an arm's-length transaction. See Regulations section 1.83-7 for the definition of a “related person.”

If you sell the property in a transaction that isn't at arm's length, include in your income as compensation for the year of sale the total of any money you received and the FMV of any substantially vested property you received on the sale. In addition, you'll have to report income when the original property becomes substantially vested, as if you still held it. Report as compensation its FMV minus the total of the amount you paid for the property and the amount included in your income from the earlier sale.

Inherited property not substantially vested.

If you inherit property not substantially vested at the time of the decedent's death, any income you receive from the property is considered income in respect of a decedent and is taxed according to the rules for restricted property received for services. For information about income in respect of a decedent, see Pub. 559.

Pension.

A pension or retirement pay for a member of the clergy is usually treated as any other pension or annuity. It must be reported on lines 5a and 5b of Form 1040 or 1040-SR.

Services performed for the order.

If you're performing the services as an agent of the order in the exercise of duties required by the order, don't include in your income the amounts turned over to the order.

If your order directs you to perform services for another agency of the supervising church or an associated institution, you're considered to be performing the services as an agent of the order. Any wages you earn as an agent of an order that you turn over to the order aren't included in your income.

Services performed outside the order.

If you're directed to work outside the order, your services aren't an exercise of duties required by the order unless they meet both of the following requirements.

U.S. citizen.

If you're a U.S. citizen who works in the United States for a foreign government, an international organization, a foreign embassy, or any foreign employer, you must include your salary in your income.

Social security and Medicare taxes.

You're exempt from social security and Medicare employee taxes if you're employed in the United States by an international organization or a foreign government. However, you must pay self-employment tax on your earnings from services performed in the United States, even though you aren't self-employed. This rule also applies if you're an employee of a qualifying wholly owned instrumentality of a foreign government.

Employees of international organizations or foreign governments.

Your compensation for official services to an international organization is exempt from federal income tax if you aren't a citizen of the United States or you're a citizen of the Philippines (whether or not you're a citizen of the United States).

Your compensation for official services to a foreign government is exempt from federal income tax if all of the following are true.

Waiver of alien status.

If you're an alien who works for a foreign government or international organization and you file a waiver under section 247(b) of the Immigration and Nationality Act to keep your immigrant status, any salary you receive after the date you file the waiver isn't exempt under this rule. However, it may be exempt under a treaty or agreement. See Pub. 519, U.S. Tax Guide for Aliens, for more information about treaties.

Nonwage income.

This exemption applies only to employees' wages, salaries, and fees. Pensions and other income, such as investment income, don't qualify for this exemption.

Employment abroad.

For information on the tax treatment of income earned abroad, see Pub. 54.

Differential wage payments.

Any payments made to you by an employer during the time you're performing service in the uniformed services are treated as compensation. These wages are subject to income tax withholding and are reported on Form W-2. See the discussion under Miscellaneous Compensation, earlier.

Military retirement pay.

If your retirement pay is based on age or length of service, it’s taxable and must be included in your income as a pension on lines 5a and 5b of Form 1040 or 1040-SR. Don’t include in your income the amount of any reduction in retirement or retainer pay to provide a survivor annuity for your spouse or children under the Retired Serviceman's Family Protection Plan or the Survivor Benefit Plan.

For a more detailed discussion of survivor annuities, see Pub. 575.

Disability.

If you're retired on disability, see Military and Government Disability Pensions under Sickness and Injury Benefits, later.

Qualified reservist distribution (QRD).

If you received a QRD of all or part of the balance in your health FSA because you're a reservist and you have been ordered or called to active duty for a period of 180 days or more, the QRD is treated as wages and is reportable on Form W-2.

Veterans' benefits.

Don’t include in your income any veterans' benefits paid under any law, regulation, or administrative practice administered by the Department of Veterans Affairs (VA). The following amounts paid to veterans or their families aren't taxable.

Peace Corps.

Living allowances you receive as a Peace Corps volunteer or volunteer leader for housing, utilities, household supplies, food, and clothing are exempt from tax.

Taxable allowances.

The following allowances must be included in your income and reported as wages.

Volunteers in Service to America (VISTA).

If you're a VISTA volunteer, you must include meal and lodging allowances paid to you in your income as wages.

National Senior Service Corps programs.

Don’t include in your income amounts you receive for supportive services or reimbursements for out-of-pocket expenses from the following programs.

Service Corps of Retired Executives (SCORE).

If you receive amounts for supportive services or reimbursements for out-of-pocket expenses from SCORE, don't include these amounts in gross income.

Volunteer tax counseling.

Don’t include in your income any reimbursements you receive for transportation, meals, and other expenses you have in training for, or actually providing, volunteer federal income tax counseling for the elderly (TCE).

You can deduct as a charitable contribution your unreimbursed out-of-pocket expenses in taking part in the volunteer income tax assistance (VITA) program.

Volunteer firefighters and emergency medical responders.

If you are a volunteer firefighter or emergency medical responder, do not include in your income the following benefits you receive from a state or local government.

The excluded income reduces any related tax or contribution deduction.

Reporting business income and expenses.

If you're in the business of renting personal property, report your income and expenses on Schedule C (Form 1040). The form instructions have information on how to complete them.

Reporting nonbusiness income.

If you aren't in the business of renting personal property, report your rental income on Schedule 1 (Form 1040), line 8l.

Reporting nonbusiness expenses.

If you rent personal property for profit, include your rental expenses in the total amount you enter on Schedule 1 (Form 1040), line 24b.

If you don't rent personal property for profit, your deductions are limited and you can't report a loss to offset other income. See Activity not for profit under Other Income, later.

Copyrights and patents.

Royalties from copyrights on literary, musical, or artistic works, and similar property, or from patents on inventions, are amounts paid to you for the right to use your work over a specified period of time. Royalties are generally based on the number of units sold, such as the number of books, tickets to a performance, or machines sold.

Oil, gas, and minerals.

Royalty income from oil, gas, and mineral properties is the amount you receive when natural resources are extracted from your property. The royalties are generally based on production or revenue and are paid to you by a person or company who leases the property from you.

Depletion.

If you're the owner of an economic interest in mineral deposits or oil and gas wells, you can recover your investment through the depletion allowance.

Coal and iron ore.

Under certain circumstances, you can treat amounts you receive from the disposal of coal and iron ore as payments from the sale of a capital asset, rather than as royalty income. For information about gain or loss from the sale of coal and iron ore, see chapter 2 of Pub. 544.

Sale of property interest.

If you sell your complete interest in oil, gas, or mineral rights, the amount you receive is considered payment for the sale of section 1231 property, not royalty income. Under certain circumstances, the sale is subject to capital gain or loss treatment as explained in the Instructions for Schedule D (Form 1040). For more information on selling section 1231 property, see chapter 3 of Pub. 544.

If you retain a royalty, an overriding royalty, or a net profit interest in a mineral property for the life of the property, you have made a lease or a sublease, and any cash you receive for the assignment of other interests in the property is ordinary income subject to a depletion allowance.

Part of future production sold (carved out production payment).

If you own mineral property but sell part of the future production, in most cases you treat the money you receive from the buyer at the time of the sale as a loan from the buyer. Don’t include it in your income or take depletion based on it.

When production begins, you include all the proceeds in your income, deduct all the production expenses, and deduct depletion from that amount to arrive at your taxable income from the property.

Partner's distributive share.

Your distributive share of partnership income, gains, losses, deductions, or credits is generally based on the partnership agreement. You must report your distributive share of these items on your return whether or not they are actually distributed to you. However, your distributive share of the partnership losses is limited to the adjusted basis of your partnership interest at the end of the partnership year in which the losses took place.

Partnership agreement.

The partnership agreement usually covers the distribution of profits, losses, and other items. However, if the agreement doesn't state how a specific item of gain or loss will be shared, or the allocation stated in the agreement doesn't have substantial economic effect, your distributive share is figured according to your interest in the partnership.

Partnership return.

Although a partnership generally pays no tax, it must file an information return on Form 1065. This shows the result of the partnership's operations for its tax year and the items that must be passed through to the partners.

Schedule K-1 (Form 1065).

You should receive from each partnership in which you're a member a copy of Schedule K-1 (Form 1065) showing your share of income, deductions, credits, and tax preference items of the partnership for the tax year. Keep Schedule K-1 for your records. Don’t attach it to your Form 1040 or 1040-SR, unless you're specifically required to do so.

Partner's return.

You must generally report partnership items on your individual return the same way as they're reported on the partnership return. That is, if the partnership had a capital gain, you report your share as explained in the Instructions for Schedule D (Form 1040). You report your share of partnership ordinary income on Schedule E (Form 1040).

Qualified joint venture.

If you and your spouse each materially participate as the only members of a jointly owned and operated business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership. To make this election, you must divide all items of income, gain, loss, deduction, and credit attributable to the business between you and your spouse in accordance with your respective interests in the venture. For further information on how to make the election and which schedule(s) to file, see the instructions for your individual tax return.

S corporation return.

An S corporation must file a return on Form 1120-S. This shows the results of the corporation's operations for its tax year and the items of income, losses, deductions, or credits that affect the shareholders' individual income tax returns.

Schedule K-1 (Form 1120-S).

You should receive a copy of Schedule K-1 (Form 1120-S) from any S corporation in which you're a shareholder. Schedule K-1 (Form 1120-S) shows your share of income, losses, deductions, and credits for the tax year. Keep Schedule K-1 (Form 1120-S) for your records. Don’t attach it to your Form 1040 or 1040-SR, unless you're specifically required to do so.

Shareholder's return.

Your distributive share of the items of income, losses, deductions, or credits of the S corporation must be shown separately on your Form 1040 or 1040-SR. The character of these items is generally the same as if you had realized or incurred them personally.

.In many cases, Schedule K-1 (Form 1120-S) will tell you where to report an item of income on your individual return..

Distributions.

In most cases, S corporation distributions are a nontaxable return of your basis in the corporation stock. However, in certain cases, part of the distributions may be taxable as a dividend, or as a long-term or short-term capital gain, or as both. The corporation's distributions may be in the form of cash or property.

More information.

For more information, see the Instructions for Form 1120-S.

Terrorist attacks or military action.

Don’t include in your income disability payments you receive for injuries incurred as a direct result of terrorist attacks or military action directed against the United States (or its allies), whether outside or within the United States. In the case of the September 11 attacks, injuries eligible for coverage by the September 11 Victim Compensation Fund are treated as incurred as a direct result of the attack. However, you must include in your income any amounts that you received that you would have received in retirement had you not become disabled as a result of a terrorist attack or military action. Accordingly, you must include in your income any payments you receive from a 401(k), pension, or other retirement plan to the extent that you would have received the amount at the same or later time regardless of whether you had become disabled. See Pub. 907.

A terrorist action is one that is directed against the United States or any of its allies (including a multinational force in which the United States is participating). A military action is one that involves the U.S. Armed Forces and is a result of actual or threatened violence or aggression against the United States or any of its allies, but doesn't include training exercises.

.Contact the company or agency making these payments if it incorrectly reports your payments as taxable income to the IRS on Form W-2, or on Form 1099-R, to request that it reissue the form to report some or all of these payments as nontaxable income in box 12 (under code J) of Form W-2 or in box 1 but not in box 2a of Form 1099-R. If income taxes are being incorrectly withheld from these payments, you may also submit Form W-4 to the company or agency to stop the withholding of income taxes from payments reported on Form W-2 or you may submit Form W-4P to stop the withholding of income taxes from payments reported on Form 1099-R..

Disability payments you receive for injuries not incurred as a direct result of a terrorist attack or military action or for illnesses or diseases not resulting from an injury incurred as a direct result of a terrorist attack or military action can't be excluded from your income under this provision but may be excludable for other reasons. See Pub. 907.

Retirement and profit-sharing plans.

If you receive payments from a retirement or profit-sharing plan that doesn't provide for disability retirement, don't treat the payments as a disability pension. The payments must be reported as a pension or annuity.

Accrued leave payment.

If you retire on disability, any lump-sum payment you receive for accrued annual leave is a salary payment. The payment isn't a disability payment. Include it in your income in the tax year you receive it.

Qualified long-term care services.

Qualified long-term care services are:

Chronically ill individual.

A chronically ill individual is one who has been certified by a licensed health care practitioner within the previous 12 months as one of the following.

Limit on exclusion.

The exclusion for payments made on a per diem or other periodic basis under a long-term care insurance contract is subject to a limit. The limit applies to the total of these payments and any accelerated death benefits made on a per diem or other periodic basis under a life insurance contract because the insured is chronically ill. (For more information on accelerated death benefits, see Life Insurance Proceeds under Miscellaneous Income, later.)

Under this limit, the excludable amount for any period is figured by subtracting any reimbursement received (through insurance or otherwise) for the cost of qualified long-term care services during the period from the larger of the following amounts.

Return to work.

If you return to work after qualifying for workers' compensation, salary payments you receive for performing light duties are taxable as wages.

Disability pension.

If your disability pension is paid under a statute that provides benefits only to employees with service-connected disabilities, part of it may be workers' compensation. That part is exempt from tax. The rest of your pension, based on years of service, is taxable as pension or annuity income. If you die, the part of your survivors' benefit that is a continuation of the workers' compensation is exempt from tax.

Railroad sick pay.

Payments you receive as sick pay under the Railroad Unemployment Insurance Act are taxable and you must include them in your income. However, don't include them in your income if they're for an on-the-job injury.

Black lung benefit payments.

These payments are similar to workers' compensation and aren't taxable in most cases.

Federal Employees' Compensation Act (FECA).

Payments received under FECA for personal injury or sickness, including payments to beneficiaries in case of death, aren't taxable. However, you're taxed on amounts you receive under FECA as continuation of pay for up to 45 days while a claim is being decided. Report this income on line 1a of Form 1040 or 1040-SR. Also, pay for sick leave while a claim is being processed is taxable and must be included in your income as wages.

.If part of the payments you receive under FECA reduces your social security or equivalent railroad retirement benefits received, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. See Pub. 554 for more information. .

Qualified Indian health care benefit.

For benefits and coverage provided after March 23, 2010, the value of any qualified Indian health care benefit isn't taxable. These benefits include any health service or benefits provided by the Indian Health Service, amounts to reimburse medical care expenses provided by an Indian tribe, coverage under accident or health insurance, and any other medical care provided by an Indian tribe.

Other compensation.

Many other amounts you receive as compensation for sickness or injury aren't taxable. These include the following amounts.

Reimbursement for medical care.

A reimbursement for medical care is generally not taxable. However, it may reduce your medical expense deduction. If you receive reimbursement for an expense you deducted in an earlier year, see Recoveries, later.

If you receive an advance reimbursement or loan for future medical expenses from your employer without regard to whether you suffered a personal injury or sickness or incurred medical expenses, that amount is included in your income, whether or not you incur uninsured medical expenses during the year.

Reimbursements received under your employer's plan for expenses incurred before the plan was established are included in income.

Amounts you receive under a reimbursement plan that provides for the payment of unused reimbursement amounts in cash or other benefits are included in your income. For details, see Pub. 969.

Form 1099-B from barter exchange.

If you exchanged property or services through a barter exchange, Form 1099-B or a similar statement from the barter exchange should be sent to you by February 15, 2024. It should show the value of cash, property, services, credits, or scrip you received from exchanges during 2023. The IRS will also receive a copy of Form 1099-B.

Backup withholding.

In most cases, the income you receive from bartering isn't subject to regular income tax withholding. However, backup withholding will apply in certain circumstances to ensure that income tax is collected on this income.

Under backup withholding, the barter exchange must withhold, as income tax, 24% of the income if:

. If tax is withheld from your barter income, the barter exchange will report the amount of tax withheld on Form 1099-B or similar statement. .

Form 1099-C.

If a federal government agency, financial institution, or credit union cancels or forgives a debt you owe of $600 or more, you may receive a Form 1099-C. Form 1099-C, box 2, shows the amount of debt either actually or deemed discharged. If you don't agree with the amount reported in box 2, contact your creditor.

Interest included in canceled debt.

If any interest is forgiven and included in the amount of canceled debt in box 2, the amount of interest will also be shown in box 3. Whether or not you must include the interest portion of the canceled debt in your income depends on whether the interest would be deductible if you paid it. See Deductible debt under Exceptions, later.

If the interest would not be deductible (such as interest on a personal loan), include in your income the amount from box 2 of Form 1099-C. If the interest would be deductible (such as on a business loan), include in your income the net amount of the canceled debt (the amount shown in box 2 less the interest amount shown in box 3).

Discounted mortgage loan.

If your financial institution offers a discount for the early payment of your mortgage loan, the amount of the discount is canceled debt. You must include the canceled amount in your income.

Mortgage relief upon sale or other disposition.

If you're personally liable for a mortgage (recourse debt), and you're relieved of the mortgage when you dispose of the property, you may realize gain or loss up to the FMV of the property. To the extent the mortgage discharge exceeds the FMV of the property, it's income from discharge of indebtedness unless it qualifies for exclusion under Excluded debt, later. Report any income from discharge of indebtedness on nonbusiness debt that doesn't qualify for exclusion as other income on Schedule 1 (Form 1040), line 8c.

.You may be able to exclude part of the mortgage relief on your principal residence. See Excluded debt, later..

If you aren't personally liable for a mortgage (nonrecourse debt), and you're relieved of the mortgage when you dispose of the property (such as through foreclosure), that relief is included in the amount you realize. You may have a taxable gain if the amount you realize exceeds your adjusted basis in the property. Report any gain on nonbusiness property as a capital gain.

See Pub. 4681 for more information.

Stockholder debt.

If you're a stockholder in a corporation and the corporation cancels or forgives your debt to it, the canceled debt is a constructive distribution that is generally dividend income to you. For more information, see Pub. 542.

If you're a stockholder in a corporation and you cancel a debt owed to you by the corporation, you generally don't realize income. This is because the canceled debt is considered as a contribution to the capital of the corporation equal to the amount of debt principal that you canceled.

Repayment of canceled debt.

If you included a canceled amount in your income and later pay the debt, you may be able to file a claim for refund for the year the amount was included in income. You can file a claim on Form 1040-X if the statute of limitations for filing a claim is still open. The statute of limitations generally doesn't end until 3 years after the due date of your original return.

Proceeds not received in installments.

If death benefits are paid to you in a lump sum or other than at regular intervals, include in your income only the benefits that are more than the amount payable to you at the time of the insured person's death. If the benefit payable at death isn't specified, you include in your income the benefit payments that are more than the present value of the payments at the time of death.

Proceeds received in installments.

If you receive life insurance proceeds in installments, you can exclude part of each installment from your income.

To determine the excluded part, divide the amount held by the insurance company (generally, the total lump sum payable at the death of the insured person) by the number of installments to be paid. Include anything over this excluded part in your income as interest.

Installments for life.

If, as the beneficiary under an insurance contract, you're entitled to receive the proceeds in installments for the rest of your life without a refund or period-certain guarantee, you figure the excluded part of each installment by dividing the amount held by the insurance company by your life expectancy. If there is a refund or period-certain guarantee, the amount held by the insurance company for this purpose is reduced by the actuarial value of the guarantee.

Surviving spouse.

If your spouse died before October 23, 1986, and insurance proceeds paid to you because of the death of your spouse are received in installments, you can exclude up to $1,000 a year of the interest included in the installments. If you remarry, you can continue to take the exclusion.

Employer-owned life insurance contract.

If you're the policyholder of an employer-owned life insurance contract, you must include in income any life insurance proceeds received that are more than the premiums and any other amounts you paid on the policy. You're subject to this rule if you have a trade or business, you own a life insurance contract on the life of your employee, and you (or a related person) are a beneficiary under the contract.

However, you may exclude the full amount of the life insurance proceeds if the following apply.

Interest option on insurance.

If an insurance company pays you interest only on proceeds from life insurance left on deposit, the interest you're paid is taxable.

If your spouse died before October 23, 1986, and you chose to receive only the interest from your insurance proceeds, the $1,000 interest exclusion for a surviving spouse doesn't apply. If you later decide to receive the proceeds from the policy in installments, you can take the interest exclusion from the time you begin to receive the installments.

Surrender of policy for cash.

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. In most cases, your cost (or investment in the contract) is the total of premiums that you paid for the life insurance policy, less any refunded premiums, rebates, dividends, or unrepaid loans that weren’t included in your income.

You should receive a Form 1099-R showing the total proceeds and the taxable part. Report these amounts on lines 5a and 5b of Form 1040 or 1040-SR.

Split-dollar life insurance.

In most cases, a split-dollar life insurance arrangement is an arrangement between an owner and a nonowner of a life insurance contract under which either party to the arrangement pays all or part of the premiums, and one of the parties paying the premiums is entitled to recover all or part of those premiums from the proceeds of the contract. There are two mutually exclusive rules to tax split-dollar life insurance arrangements.

Tax benefit rule.

You must include a recovery in your income in the year you receive it up to the amount by which the deduction or credit you took for the recovered amount reduced your tax in the earlier year. For this purpose, any increase to an amount carried over to the current year that resulted from the deduction or credit is considered to have reduced your tax in the earlier year.

Federal income tax refund.

Refunds of federal income taxes aren't included in your income because they're never allowed as a deduction from income.

State tax refund.

If you received a state or local income tax refund (or credit or offset) in 2023, you must generally include it in income if you deducted the tax in an earlier year. The payer should send Form 1099-G to you by January 31, 2024. The IRS will also receive a copy of the Form 1099-G. If you file Form 1040 or 1040-SR, use the worksheet in the 2023 Instructions for Schedule 1 (Form 1040) to figure the amount (if any) to include in your income. See Itemized Deduction Recoveries, later, for when you must use Worksheet 2, later in this publication.

If you could choose to deduct for a tax year either:

Example 26.

For 2022, you can choose a $10,000 state income tax deduction or a $9,000 state general sales tax deduction. You choose to deduct the state income tax. In 2023, you receive a $2,500 state income tax refund. The maximum refund that you may have to include in income is $1,000, because you could have deducted $9,000 in state general sales tax.

Example 27.

For 2022, you can choose a $9,500 state general sales tax deduction based on actual expenses or a $9,200 state income tax deduction. You choose to deduct the general sales tax deduction. In 2023, you return an item you had purchased and receive a $500 sales tax refund. In 2023, you also receive a $1,500 state income tax refund. The maximum refund that you may have to include in income is $500, because it's less than the excess of the tax deducted ($9,500) over the tax you didn't choose to deduct ($9,200 − $1,500 = $7,700). Because you didn't choose to deduct the state income tax, you don't include the state income tax refund in income.

Mortgage interest refund.

If you received a refund or credit in 2023 of mortgage interest paid in an earlier year, the amount should be shown in Form 1098, box 4. Don’t subtract the refund amount from the interest you paid in 2023. You may have to include it in your income under the rules explained in the following discussions.

Interest on recovery.

Interest on any of the amounts you recover must be reported as interest income in the year received. For example, report any interest you received on state or local income tax refunds on Form 1040, 1040-SR, or 1040-NR, line 2b.

Recovery and expense in same year.

If the refund or other recovery and the expense occur in the same year, the recovery reduces the deduction or credit and isn't reported as income.

Recovery for 2 or more years.

If you receive a refund or other recovery that is for amounts you paid in 2 or more separate years, you must allocate, on a pro rata basis, the recovered amount between the years in which you paid it. This allocation is necessary to determine the amount of recovery from any earlier years and to determine the amount, if any, of your allowable deduction for this item for the current year.

Joint state or local income tax return.

If you filed a joint state or local income tax return in an earlier year and you aren't filing a joint Form 1040 or 1040-SR with the same person for 2023, any refund of a deduction claimed on that state or local income tax return must be allocated to the person that paid the expense. If both persons paid a portion of the expense, allocate the refund based on your individual portion. For example, if you paid 25% of the expense, then you would use 25% of the refund to figure if you must include any portion of the refund in your income.

Registered domestic partners (RDPs) domiciled in community property states.

For the rules that apply to RDPs who are domiciled in community property states, see Pub. 555 and Form 8958.

Deductions not itemized.

If you didn't itemize deductions for the year for which you received the recovery of an expense that was deductible only if you itemized, don't include any of the recovery amount in your income.

Lump-sum payments.

Lump-sum payments you receive from a decedent's employer as the surviving spouse or beneficiary may be accrued salary payments; distributions from employee profit-sharing, pension, annuity, or stock bonus plans; or other items that should be treated separately for tax purposes. The tax treatment of these lump-sum payments depends on the type of payment.

Salary or wages.

Salary or wages received after the death of the employee are usually ordinary income to you.

Qualified employee retirement plans.

Lump-sum distributions from qualified employee retirement plans are subject to special tax treatment. For information on these distributions, see Pub. 575 (or Pub. 721 if you're the survivor of a federal employee or retiree).

Public safety officer killed in the line of duty.

If you're a survivor of a public safety officer who was killed in the line of duty, you can exclude from income any amount received as a survivor annuity on account of the death of a public safety officer killed in the line of duty.

For this purpose, the term “public safety officer” includes law enforcement officers, firefighters, chaplains, and rescue squad and ambulance crew members. For more information, see Pub. 559.

Unemployment compensation.

Generally, you must include in income all unemployment compensation you receive. You should receive a Form 1099-G showing in box 1 the total unemployment compensation paid to you. In most cases, you enter unemployment compensation on Schedule 1 (Form 1040), line 7.

.If you received unemployment compensation but didn't receive Form 1099-G, Certain Government Payments, through the mail, you may need to access your information through your state’s website to get your electronic Form 1099-G..

Types of unemployment compensation.

Unemployment compensation generally includes any amount received under an unemployment compensation law of the United States or of a state. It includes the following benefits.

Governmental program.

If you contribute to a governmental unemployment compensation program and your contributions aren't deductible, amounts you receive under the program aren't included as unemployment compensation until you recover your contributions. If you deducted all of your contributions to the program, the entire amount you receive under the program is included in your income.

Repayment of unemployment compensation.

If you repaid in 2023 unemployment compensation you received in 2023, subtract the amount you repaid from the total amount you received and enter the difference on Schedule 1 (Form 1040), line 7. On the dotted line next to your entry, enter “Repaid” and the amount you repaid. If you repaid unemployment compensation in 2023 that you included in your income in an earlier year and the amount is more than $3,000, you can deduct the amount repaid on Schedule A (Form 1040), line 16, if you itemize deductions or you can take a credit against your tax on Schedule 3 (Form 1040), line 13b. See Repayments, later.

Tax withholding.

You can choose to have federal income tax withheld from your unemployment compensation. To make this choice, complete Form W-4V and give it to the paying office. Tax will be withheld at 10% of your payment.

. If you don't choose to have tax withheld from your unemployment compensation, you may be liable for estimated tax. If you don't pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. For more information, see Pub. 505..

Supplemental unemployment benefits.

Benefits received from an employer-financed fund (to which the employees didn't contribute) aren't unemployment compensation. They're taxable as wages and are subject to withholding for income tax. They may be subject to social security and Medicare taxes. For more information, see Supplemental Unemployment Benefits in section 5 of Pub. 15-A. Report these payments on line 1a of Form 1040 or 1040-SR.

Repayment of benefits.

You may have to repay some of your supplemental unemployment benefits to qualify for trade readjustment allowances under the Trade Act of 1974. If you repay supplemental unemployment benefits in the same year you receive them, reduce the total benefits by the amount you repay. If you repay the benefits in a later year, you must include the full amount of the benefits in your income for the year you received them.

Deduct the repayment in the later year as an adjustment to gross income on Form 1040 or 1040-SR. Include the repayment on Schedule 1 (Form 1040), line 24e. If the amount you repay in a later year is more than $3,000, you may be able to take a credit against your tax for the later year instead of deducting the amount repaid. For information on this, see Repayments, later.

Private unemployment fund.

Unemployment benefit payments from a private (nonunion) fund to which you voluntarily contribute are taxable only if the amounts you receive are more than your total payments into the fund. Report the taxable amount on Schedule 1 (Form 1040), line 8z.

Payments by a union.

Benefits paid to you as an unemployed member of a union from regular union dues are included in your income on Schedule 1 (Form 1040), line 8z. However, if you contribute to a special union fund and your payments to the fund aren't deductible, the unemployment benefits you receive from the fund are includible in your income only to the extent they're more than your contributions.

Guaranteed annual wage.

Payments you receive from your employer during periods of unemployment, under a union agreement that guarantees you full pay during the year, are taxable as wages. Include them on line 1a of Form 1040 or 1040-SR.

State employees.

Payments similar to a state's unemployment compensation may be made by the state to its employees who aren't covered by the state's unemployment compensation law. Although the payments are fully taxable, don't report them as unemployment compensation. Report these payments on Schedule 1 (Form 1040), line 8z.

Work-training program.

Payments you receive from a state welfare agency for taking part in a work-training program aren't included in your income, as long as the payments (exclusive of extra allowances for transportation or other costs) don't total more than the public welfare benefits you would have received otherwise. If the payments are more than the welfare benefits you would have received, the entire amount must be included in your income as wages.

Reemployment Trade Adjustment Assistance (RTAA) payments.

Payments you receive from a state agency under the RTAA must be included in your income. The state must send you Form 1099-G to advise you of the amount you should include in income. The amount should be reported on Schedule 1 (Form 1040), line 8z.

Persons with disabilities.

If you have a disability, you must include in income compensation you receive for services you perform unless the compensation is otherwise excluded. However, you don't include in income the value of goods, services, and cash that you receive, not in return for your services, but for your training and rehabilitation because you have a disability. Excludable amounts include payments for transportation and attendant care, such as interpreter services for the deaf, reader services for the blind, and services to help individuals with an intellectual disability do their work.

Disaster relief grants.

Don’t include post-disaster grants received under the Disaster Relief and Emergency Assistance Act in your income if the grant payments are made to help you meet necessary expenses or serious needs for medical, dental, housing, personal property, transportation, or funeral expenses. Don’t deduct casualty losses or medical expenses that are specifically reimbursed by these disaster relief grants. If you have deducted a casualty loss for the loss of your personal residence and you later receive a disaster relief grant for the loss of the same residence, you may have to include part or all of the grant in your taxable income. See Recoveries, earlier. Unemployment assistance payments under the Act are taxable unemployment compensation. See Unemployment compensation under Unemployment Benefits, earlier.

Disaster relief payments.

You can exclude from income any amount you receive that is a qualified disaster relief payment. A qualified disaster relief payment is an amount paid to you:

A qualified disaster is:

For amounts paid under item 4, a disaster is qualified if it's determined by an applicable federal, state, or local authority to warrant assistance from the federal, state, or local government, agency, or instrumentality.

Disaster mitigation payments.

You can also exclude from income any amount you receive that is a qualified disaster mitigation payment. Qualified disaster mitigation payments are commonly paid to you in the period immediately following damage to property as a result of a natural disaster. However, disaster mitigation payments are used to mitigate (reduce the severity of) potential damage from future natural disasters. They're paid to you through state and local governments based on the provisions of the Robert T. Stafford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act.

You can't increase the basis or adjusted basis of your property for improvements made with nontaxable disaster mitigation payments.

Home Affordable Modification Program (HAMP).

If you benefit from Pay-for-Performance Success Payments under HAMP, the payments aren't taxable.

Hardest Hit Fund and Emergency Homeowners' Loan Program.

If you receive or benefit from payments made under:

For more details about the HAF program, go to Home.Treasury.gov/Policy-Issues/Coronavirus/Assistance-for-State-Local-and-Tribal-Governments/Homeowner-Assistance-Fund.

If you are a tribal member and wish more details about the HAF program, go to IRS.gov/Newsroom/FAQs-for-Payments-by-Indian-Tribal-Governments-and-Alaska-Native-Corporations-to-Individuals-Under-Covid-Relief-Legislation.

Mortgage assistance payments under section 235 of the National Housing Act.

Payments made under section 235 of the National Housing Act for mortgage assistance aren't included in the homeowner's income. Interest paid for the homeowner under the mortgage assistance program can't be deducted.

Replacement housing payments.

Replacement housing payments made under the Uniform Relocation Assistance and Real Property Acquisition Policies Act for Federal and Federally Assisted Programs aren't includible in gross income, but are includible in the basis of the newly acquired property.

Relocation payments and home rehabilitation grants.

A relocation payment under section 105(a)(11) of the Housing and Community Development Act made by a local jurisdiction to a displaced individual moving from a flood-damaged residence to another residence isn't includible in gross income. Home rehabilitation grants received by low-income homeowners in a defined area under the same Act are also not includible in gross income.

Indian financing grants.

Nonreimbursable grants under title IV of the Indian Financing Act of 1974 to Indians to expand profit-making Indian-owned economic enterprises on or near reservations aren't includible in gross income.

Indian general welfare benefit.

Gross income doesn't include the value of any Indian general welfare benefit. “Indian general welfare benefit” includes any payment made or services provided to or on behalf of a member (or any spouse or dependent of that member) of an Indian tribe or Alaska Native Corporation under an Indian tribal government program, but only if:

Generally, any items of cultural significance, reimbursement of costs, or cash honorarium for participation in cultural or ceremonial activities for the transmission of tribal culture aren't treated as compensation for services.

Note.

The above exclusion was enacted by the Tribal General Welfare Exclusion Act of 2014, September 26, 2014. The exclusion applies to tax years for which the period of limitation on refund or credit under section 6511 has not expired (generally, within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever expires later). Additionally, a claim for the above exclusion will be allowed if made within 1 year of the enactment of the exclusion.

Note.

The enactment of the above exclusion generally codifies the exclusion afforded under Revenue Procedure 2014-35, June 4, 2014. See Revenue Procedure 2014-35 for more details.

Medicare.

Medicare benefits received under title XVIII of the Social Security Act aren't includible in the gross income of the individuals for whom they're paid. This includes basic (Part A (Hospital Insurance Benefits for the Aged)) and supplementary (Part B (Supplementary Medical Insurance Benefits for the Aged)).

Social security benefits (including lump-sum payments attributable to prior years), Supplemental Security Income (SSI) benefits, and lump-sum death benefits.

The Social Security Administration (SSA) provides benefits such as old-age benefits, benefits to disabled workers, and benefits to spouses and dependents. These benefits may be subject to federal income tax depending on your filing status and other income. See Pub. 915 for more information. An individual originally denied benefits, but later approved, may receive a lump-sum payment for the period when benefits were denied (which may be prior years). See Pub. 915 for information on how to make a lump-sum election, which may reduce your tax liability. There are also other types of benefits paid by the SSA. However, SSI benefits and lump-sum death benefits (one-time payment to spouse and children of deceased) aren't subject to federal income tax. For more information on these benefits, go to SSA.gov.

Form SSA-1099.

If you received social security benefits during the year, you'll receive Form SSA-1099, Social Security Benefit Statement. An IRS Notice 703 will be enclosed with your Form SSA-1099. This notice includes a worksheet you can use to figure whether any of your benefits are taxable.

For an explanation of the information found on your Form SSA-1099, see Pub. 915.

Form RRB-1099.

If you received equivalent railroad retirement or special guaranty benefits during the year, you'll receive Form RRB-1099, Payments by the Railroad Retirement Board.

For an explanation of the information found on your Form RRB-1099, see Pub. 915.

Joint return.

If you're married and file a joint return, you and your spouse must combine your incomes and your social security and equivalent railroad retirement benefits when figuring whether any of your combined benefits are taxable. Even if your spouse didn't receive any benefits, you must add your spouse's income to yours when figuring if any of your benefits are taxable.

Taxable amount.

Use the worksheet in the Forms 1040 and 1040-SR instruction package to determine the amount of your benefits to include in your income. Pub. 915 also has worksheets you can use. However, you must use the worksheets in Pub. 915 if any of the following situations apply.

Benefits may affect your IRA deduction.

You must use the special worksheets in Appendix B of Pub. 590-A to figure your taxable benefits and your IRA deduction if all of the following conditions apply.

How to report.

If any of your benefits are taxable, you must use Form 1040 or 1040-SR to report the taxable part. Report your net benefits (as shown on your Forms SSA-1099 and RRB-1099) on line 6a of Form 1040 or 1040-SR. Report the taxable part on line 6b of Form 1040 or 1040-SR. If you elect to use the lump-sum election method, check the box on line 6c of Form 1040 or 1040-SR and see the instructions.

Nutrition Program for the Elderly.

Food benefits you receive under the Nutrition Program for the Elderly aren't taxable. If you prepare and serve free meals for the program, include in your income as wages the cash pay you receive, even if you're also eligible for food benefits.

Payments to reduce cost of winter energy.

Payments made by a state to qualified people to reduce their cost of winter energy use aren't taxable.

Activity not for profit.

You must include on your return income from an activity from which you don't expect to make a profit. An example of this type of activity is a hobby or a farm you operate mostly for recreation and pleasure. Enter this income on Schedule 1 (Form 1040), line 8j. Deductions for expenses related to the activity are limited. They can't total more than the income you report and can be taken only if you itemize deductions on Schedule A (Form 1040).

Alaska Permanent Fund dividend.

If you received a payment from Alaska's mineral income fund (Alaska Permanent Fund dividend), report it as income on Schedule 1 (Form 1040), line 8g. The state of Alaska sends each recipient a document that shows the amount of the payment with the check. The amount is also reported to the IRS.

Alimony.

Include in your income on Schedule 1 (Form 1040), line 2a, any taxable alimony payments you receive. Amounts you receive for child support aren't income to you. For complete information, see Pub. 504 and the Instructions for Forms 1040 and 1040-SR.

Below-market loans.

A below-market loan is a loan on which no interest is charged or on which the interest is charged at a rate below the applicable federal rate. If you make a below-market gift or demand loan, you must include the forgone interest (at the federal rate) as interest income on your return. These loans are considered a transaction in which you, the lender, are treated as having made:

For more information on below-market loans, see chapter 1 of Pub. 550.

Bribes.

If you receive a bribe, include it in your income.

Campaign contributions.

These contributions aren't income to a candidate unless they're diverted to the candidate’s personal use. To be exempt from tax, the contributions must be spent for campaign purposes or kept in a fund for use in future campaigns. However, interest earned on bank deposits, dividends received on contributed securities, and net gains realized on sales of contributed securities are taxable and must be reported on Form 1120-POL. Excess campaign funds transferred to an office account must be included in the officeholder's income on Schedule 1 (Form 1040), line 8z, in the year transferred.

Canceled sales contract.

If you sell property (such as land or a residence) under a contract, but the contract is canceled and you return the buyer's money in the same tax year as the original sale, you have no income from the sale. If the contract is canceled and you return the buyer's money in a later tax year, you must include your gain in your income for the year of the sale. When you return the money and take back the property in the later year, you treat the transaction as a purchase that gives you a new basis in the property equal to the funds you return to the buyer.

Special rules apply to the reacquisition of real property where a secured indebtedness (mortgage) to the original seller is involved. For further information, see Repossession in Pub. 537.

Carpools.

Don’t include in your income amounts you receive from the passengers for driving a car in a carpool to and from work. These amounts are considered reimbursement for your expenses. However, this rule doesn't apply if you have developed carpool arrangements into a profit-making business of transporting workers for hire.

Cash rebates.

A cash rebate you receive from a dealer or manufacturer of an item you buy isn't income, but you must reduce your basis by the amount of the rebate.

Casualty insurance and other reimbursements.

You generally shouldn't report these reimbursements on your return unless you're figuring gain or loss from the casualty or theft. See Pub. 547.

Charitable gift annuities.

If you're the beneficiary of a charitable gift annuity, you must include the yearly annuity or fixed percentage payment in your income.

The payer will report the types of income you received on Form 1099-R. Report the gross distribution from box 1 on Form 1040 or 1040-SR, line 5a, and the part taxed as ordinary income (box 2a minus box 3) on Form 1040 or 1040-SR, line 5b. Report the portion taxed as capital gain as explained in the Instructions for Schedule D (Form 1040).

Child support payments.

You shouldn't report these payments on your return. See Pub. 504 for more information.

Court awards and damages.

To determine if settlement amounts you receive by compromise or judgment must be included in your income, you must consider the item that the settlement replaces. The character of the income as ordinary income or capital gain depends on the nature of the underlying claim. Include the following as ordinary income.

Don’t include in your income compensatory damages for personal physical injury or physical sickness (whether received in a lump sum or installments).

Emotional distress.

Emotional distress itself isn't a physical injury or physical sickness, but damages you receive for emotional distress due to a physical injury or sickness are treated as received for the physical injury or sickness. Don’t include them in your income.

If the emotional distress is due to a personal injury that isn't due to a physical injury or sickness (for example, unlawful discrimination or injury to reputation), you must include the damages in your income, except for any damages you receive for medical care due to that emotional distress. Emotional distress includes physical symptoms that result from emotional distress, such as headaches, insomnia, and stomach disorders.

Deduction for costs involved in unlawful discrimination suits.

You may be able to deduct attorney fees and court costs paid to recover a judgment or settlement for a claim of unlawful discrimination under various provisions of federal, state, and local law listed in section 62(e), a claim against the U.S. Government, or a claim under section 1862(b)(3)(A) of the Social Security Act. You can claim this deduction as an adjustment to income on Schedule 1 (Form 1040), line 24h. The following rules apply.

Pre-existing agreement.

If you receive damages under a written binding agreement, court decree, or mediation award that was in effect (or issued on or before) September 13, 1995, don't include in income any of those damages received on account of personal injuries or sickness.

Credit card insurance.

In most cases, if you receive benefits under a credit card disability or unemployment insurance plan, the benefits are taxable to you. These plans make the minimum monthly payment on your credit card account if you can't make the payment due to injury, illness, disability, or unemployment. Report on Schedule 1 (Form 1040), line 8z, the amount of benefits you received during the year that is more than the amount of the premiums you paid during the year.

Down payment assistance.

If you purchase a home and receive assistance from a nonprofit corporation to make the down payment, that assistance isn't included in your income. If the corporation qualifies as a tax-exempt charitable organization, the assistance is treated as a gift and is included in your basis of the house. If the corporation doesn't qualify, the assistance is treated as a rebate or reduction of the purchase price and isn't included in your basis.

Employment agency fees.

If you get a job through an employment agency, and the fee is paid by your employer, the fee isn't includible in your income if you aren't liable for it. However, if you pay it and your employer reimburses you for it, it’s includible in your income.

Energy conservation subsidies.

You can exclude from gross income any subsidy provided, either directly or indirectly, by public utilities for the purchase or installation of an energy conservation measure for a dwelling unit.

Energy conservation measure.

This includes installations or modifications that are primarily designed to reduce consumption of electricity or natural gas, or improve the management of energy demand.

Dwelling unit.

This includes a house, apartment, condominium, mobile home, boat, or similar property. If a building or structure contains both dwelling and other units, any subsidy must be properly allocated.

Estate and trust income.

An estate or trust, unlike a partnership, may have to pay federal income tax. If you're a beneficiary of an estate or trust, you may be taxed on your share of its income distributed or required to be distributed to you. However, there is never a double tax. Estates and trusts file their returns on Form 1041, and your share of the income is reported to you on Schedule K-1 (Form 1041).

Current income required to be distributed.

If you're the beneficiary of an estate or trust that must distribute all of its current income, you must report your share of the distributable net income, whether or not you actually received it.

Current income not required to be distributed.

If you're the beneficiary of an estate or trust and the fiduciary has the choice of whether to distribute all or part of the current income, you must report all income that is required to be distributed to you, whether or not it's actually distributed, plus all other amounts actually paid or credited to you, up to the amount of your share of distributable net income.

How to report.

Treat each item of income the same way that the estate or trust would treat it. For example, if a trust's dividend income is distributed to you, you report the distribution as dividend income on your return. The same rule applies to distributions of tax-exempt interest and capital gains.

The fiduciary of the estate or trust must tell you the type of items making up your share of the estate or trust income and any credits you're allowed on your individual income tax return.

Losses.

Losses of estates and trusts generally aren't deductible by the beneficiaries.

Grantor trust.

Income earned by a grantor trust is taxable to the grantor, not the beneficiary, if the grantor keeps certain control over the trust. (The grantor is the one who transferred property to the trust.) This rule applies if the property (or income from the property) put into the trust will or may revert (be returned) to the grantor or the grantor's spouse.

Generally, a trust is a grantor trust if the grantor has a reversionary interest valued (at the date of transfer) at more than 5% of the value of the transferred property, or has certain other powers.

Expenses paid by another.

If your personal expenses are paid for by another person, such as a corporation, the payment may be taxable to you depending upon your relationship with that person and the nature of the payment. But if the payment makes up for a loss caused by that person, and only restores you to the position you were in before the loss, the payment isn't includible in your income.

Exxon Valdez settlement income.

Include in your income on Schedule 1 (Form 1040), line 8z, any qualified settlement income you receive as a qualified taxpayer. See Statement, later. Qualified settlement income is any interest and punitive damage awards that are:

You're a qualified taxpayer if you were a plaintiff in the civil action mentioned earlier or you were a beneficiary of the estate of your spouse or a close relative who was such a plaintiff and from whom you acquired the right to receive qualified settlement income.

The income can be received as a lump sum or as periodic payments. You'll receive a Form 1099-MISC showing the gross amount of the settlement income paid to you in the tax year.

Contributions to eligible retirement plan.

If you're a qualified taxpayer, you can contribute all or part of your qualified settlement income, up to $100,000, to an eligible retirement plan, including an IRA. Contributions to eligible retirement plans, other than a Roth IRA or a designated Roth account, reduce the qualified settlement income that you must include in income. See Statement, later. For more information on these contributions, see Pubs. 575 and 590-A.

Legal expenses.

For tax years after 2017, you can no longer deduct legal expenses that were subject to the 2%-of-adjusted-gross-income floor. If the qualified settlement income was received in connection with your trade or business (other than as an employee), you can reduce the taxable amount of qualified settlement income by these expenses.

Statement.

If you report on Schedule 1 (Form 1040), line 8z, qualified settlement income that is less than the gross amount shown on Form 1099-MISC, you must attach a statement to your tax return. The statement must identify and show the gross amount of the qualified settlement income, the reductions for the amount contributed to an eligible retirement plan, and the net amount.

Income averaging.

For purposes of the income averaging rules that apply to an individual engaged in a farming or fishing business, qualified settlement income is treated as attributable to a fishing business for the tax year in which it's received. See Schedule J (Form 1040) and its instructions for more information.

Fees for services.

Include all fees for your services in your income. Examples of these fees are amounts you receive for services you perform as:

. If you aren't an employee and the fees for your services from a single payer in the course of the payer's trade or business total $600 or more for the year, the payer should send you Form 1099-MISC. .

Corporate director.

Corporate director fees are self-employment income. Report these payments on Schedule C (Form 1040).

Personal representatives.

All personal representatives must include in their gross income fees paid to them from an estate. If you aren't in the trade or business of being an executor (for instance, you're the executor of a friend's or relative's estate), report these fees on Schedule 1 (Form 1040), line 8z. If you're in the trade or business of being an executor, report these fees as self-employment income on Schedule C (Form 1040). The fee isn't includible in income if it's waived.

Manager of trade or business for bankruptcy estate.

Include in your income all payments received from your bankruptcy estate for managing or operating a trade or business that you operated before you filed for bankruptcy. Report this income on Schedule 1 (Form 1040), line 8z.

Notary public.

Report payments for these services on Schedule C (Form 1040). These payments aren't subject to self-employment tax. See the separate Instructions for Schedule SE (Form 1040) for details.

Election precinct official.

You should receive a Form W-2 showing payments for services performed as an election official or election worker. Report these payments on line 1a of Form 1040 or 1040-SR.

Food program payments to daycare providers.

If you operate a daycare service and receive payments under the Child and Adult Care Food Program administered by the Department of Agriculture that aren't for your services, the payments aren't included in your income in most cases. However, you must include in your income any part of the payments you don't use to provide food to individuals eligible for help under the program.

Foreign currency transactions.

If you have a gain on a personal foreign currency transaction because of changes in exchange rates, you don't have to include that gain in your income unless it's more than $200. If the gain is more than $200, report it as a capital gain.

Foster care providers.

Generally, payment you receive from a state, political subdivision, or a qualified foster care placement agency for caring for a qualified foster individual in your home is excluded from your income. However, you must include in your income payment to the extent it's received for the care of more than 5 qualified foster individuals age 19 years or older.

A qualified foster individual is a person who:

Difficulty-of-care payments.

These are payments that are designated by the payer as compensation for providing the additional care that is required for physically, mentally, or emotionally handicapped qualified foster individuals. A state must determine that the additional compensation is needed, and the care for which the payments are made must be provided in the foster care provider's home in which the qualified foster individual was placed.

Certain Medicaid waiver payments are treated as difficulty-of-care payments when received by an individual care provider for caring for an eligible individual (whether related or unrelated) living in the provider's home. See Notice 2014-7, available at IRS.gov/irb/2014-4_IRB#NOT-2014-7, and related questions and answers, available at IRS.gov/Individuals/Certain-Medicaid-Waiver-Payments-May-Be-Excludable-From-Income, for more information.

You must include in your income difficulty-of-care payments to the extent they're received for more than:

Maintaining space in home.

If you're paid to maintain space in your home for emergency foster care, you must include the payment in your income.

Reporting taxable payments.

If you receive payments that you must include in your income and you're in business as a foster care provider, report the payments on Schedule C (Form 1040). See Pub. 587 to help you determine the amount you can deduct for the use of your home.

Found property.

If you find and keep property that doesn't belong to you that has been lost or abandoned (treasure trove), it's taxable to you at its FMV in the first year it's your undisputed possession.

Free tour.

If you received a free tour from a travel agency for organizing a group of tourists, you must include its value in your income. Report the FMV of the tour on Schedule 1 (Form 1040), line 8z, if you aren't in the trade or business of organizing tours. You can't deduct your expenses in serving as the voluntary leader of the group at the group's request. If you organize tours as a trade or business, report the tour's value on Schedule C (Form 1040).

Gambling winnings.

You must include your gambling winnings in your income on Schedule 1 (Form 1040), line 8b. Winnings from fantasy sports leagues are gambling winnings. If you itemize your deductions on Schedule A (Form 1040), you can deduct gambling losses you had during the year, but only up to the amount of your winnings. If you're in the trade or business of gambling, use Schedule C (Form 1040). For tax years 2018 through 2025, professional gambling losses and expenses are limited to the amount of your winnings.

Lotteries and raffles.

Winnings from lotteries and raffles are gambling winnings. In addition to cash winnings, you must include in your income the FMV of bonds, cars, houses, and other noncash prizes. However, the difference between the FMV and the cost of an oil and gas lease obtained from the government through a lottery isn't includible in income.

Installment payments.

Generally, if you win a state lottery prize payable in installments, you must include in your gross income the annual payments and any amounts you receive designated as interest on the unpaid installments. If you sell future lottery payments for a lump sum, you must report the amount you receive from the sale as ordinary income (on Schedule 1 (Form 1040), line 8b) in the year you receive it.

Form W-2G.

You may have received a Form W-2G showing the amount of your gambling winnings and any tax taken out of them. Include the amount from box 1 on Schedule 1 (Form 1040), line 8b. Include the amount shown in box 4 on Form 1040 or 1040-SR, line 25c, as federal income tax withheld.

Gifts and inheritances.

In most cases, property you receive as a gift, bequest, or inheritance isn't included in your income. However, if property you receive this way later produces income such as interest, dividends, or rents, that income is taxable to you. If property is given to a trust and the income from it is paid, credited, or distributed to you, that income is also taxable to you. If the gift, bequest, or inheritance is the income from the property, that income is taxable to you.

Inherited pension or IRA.

If you inherited a pension or an IRA, you may have to include part of the inherited amount in your income. See Survivors and Beneficiaries in Pub. 575 if you inherited a pension. See What if You Inherit an IRA? in Pubs. 590-A and 590-B if you inherited an IRA.

Expected inheritance.

If you sell an interest in an expected inheritance from a living person, include the entire amount you receive in gross income on Schedule 1 (Form 1040), line 8z.

Bequest for services.

If you receive cash or other property as a bequest for services you performed while the decedent was alive, the value is taxable compensation.

Gulf oil spill.

If you received payments for lost wages or income, property damage, or physical injury due to the Gulf oil spill, the payment may be taxable.

Lost wages or income.

Payments you received for lost wages, lost business income, or lost profits are taxable.

Property damage.

Payments you received for property damage aren't taxable if the payments aren't more than your adjusted basis in the property. If the payments are more than your adjusted basis, you'll realize a gain. If the damage was due to an involuntary conversion, you may defer the tax on the gain if you purchase qualified replacement property. See Pub. 544.

If the payments (including insurance proceeds) you received, or expect to receive, are less than your adjusted basis, you may be able to claim a casualty deduction. See Pub. 547.

Physical injury.

Payments you received for personal physical injuries or physical sickness aren't taxable. This includes payments for emotional distress that is attributable to personal physical injuries or physical sickness. Payments for emotional distress that aren't attributable to personal physical injuries or physical sickness are taxable.

More information.

For the most recent guidance, go to IRS.gov and enter “Gulf Oil Spill” in the search box.

Historic preservation grants.

Don’t include in your income any payment you receive under the National Historic Preservation Act to preserve a historically significant property.

Hobby losses.

Losses from a hobby aren't deductible from other income. A hobby is an activity from which you don't expect to make a profit. See Activity not for profit, earlier, under Other Income.

.If you collect stamps, coins, or other items as a hobby for recreation and pleasure, and you sell any of the items, your gain is taxable as a capital gain. However, if you sell items from your collection at a loss, you can't deduct the loss. .

Holocaust victims restitution.

Restitution payments you receive as a Holocaust victim (or the heir of a Holocaust victim) and interest earned on the payments aren't taxable. Excludable interest is earned by escrow accounts or settlement funds established for holding funds prior to the settlement. You also don't include the restitution payments and interest the funds earned prior to disbursement in any calculation in which you ordinarily would add excludable income to your AGI, such as the calculation to determine the taxable part of social security benefits. If the payments are made in property, your basis in the property is its FMV when you receive it.

Excludable restitution payments are payments or distributions made by any country or any other entity because of persecution of an individual on the basis of race, religion, physical or mental disability, or sexual orientation by Nazi Germany, any other Axis regime, or any other Nazi-controlled or Nazi-allied country, whether the payments are made under a law or as a result of a legal action. They include compensation or reparation for property losses resulting from Nazi persecution, including proceeds under insurance policies issued before and during World War II by European insurance companies.

Illegal activities.

Income from illegal activities, such as money from dealing illegal drugs, must be included in your income on Schedule 1 (Form 1040), line 8z, or on Schedule C (Form 1040) if from your self-employment activity.

Indian fishing rights.

If you're a member of a qualified Indian tribe that has fishing rights secured by treaty, executive order, or an Act of Congress as of March 17, 1988, don't include in your income amounts you receive from activities related to those fishing rights. The income isn't subject to income tax, self-employment tax, or employment taxes.

Indian money account litigation settlement.

Amounts received by an individual Indian as a lump sum or periodic payment pursuant to the Class Action Settlement Agreement dated December 7, 2009, aren't included in gross income. This amount won't be used to figure AGI or MAGI in applying any Internal Revenue Code provision that takes into account excludable income.

Interest on frozen deposits.

In general, you exclude from your income the amount of interest earned on a frozen deposit. A deposit is frozen if, at the end of the calendar year, you can't withdraw any part of the deposit because:

Excludable amount.

The amount of interest you exclude from income for the year is the interest that was credited on the frozen deposit for that tax year minus the sum of:

Interest on qualified savings bonds.

You may be able to exclude from income the interest from qualified U.S. savings bonds you redeem if you pay qualified higher education expenses in the same year. Qualified higher education expenses are those you pay for tuition and required fees at an eligible educational institution for you, your spouse, or your dependent. A qualified U.S. savings bond is a series EE bond issued after 1989 or a series I bond. The bond must have been issued to you when you were 24 years of age or older. For more information on this exclusion, see Education Savings Bond Program in chapter 1 of Pub. 550 and in chapter 10 of Pub. 970.

Interest on state and local government obligations.

This interest is usually exempt from federal tax. However, you must show the amount of any tax-exempt interest on your federal income tax return. For more information, see State or Local Government Obligations in chapter 1 of Pub. 550.

Job interview expenses.

If a prospective employer asks you to appear for an interview and either pays you an allowance or reimburses you for your transportation and other travel expenses, the amount you receive isn't taxable in most cases. You include in income only the amount you receive that is more than your actual expenses.

Jury duty.

Jury duty pay you receive must be included in your income on Schedule 1 (Form 1040), line 8h. If you must give the pay to your employer because your employer continues to pay your salary while you serve on the jury, you can deduct the amount turned over to your employer as an adjustment to income. Enter the amount you repay your employer on Schedule 1 (Form 1040), line 24a.

Kickbacks.

You must include kickbacks, side commissions, push money, or similar payments you receive in your income on Schedule 1 (Form 1040), line 8z, or on Schedule C (Form 1040) if from your self-employment activity.

Manufacturer incentive payments.

You must include as other income on Schedule 1 (Form 1040), line 8z (or Schedule C (Form 1040) if you're self-employed), incentive payments from a manufacturer that you receive as a salesperson. This is true whether you receive the payment directly from the manufacturer or through your employer.

Medical savings accounts (Archer MSAs and Medicare Advantage MSAs).

In most cases, you don't include in income amounts you withdraw from your Archer MSA or Medicare Advantage MSA if you use the money to pay for qualified medical expenses. Generally, qualified medical expenses are those you can deduct on Schedule A (Form 1040). For more information about Archer MSAs or Medicare Advantage MSAs, see Pub. 969.

Moving expense reimbursements.

For tax years beginning after 2017, reimbursements for certain moving expenses are no longer excluded from the gross income of nonmilitary taxpayers.

Prizes and awards.