Taxable income refers to the amount of your gross income that the IRS deems is subject to taxation. Applying your effective tax rate to your taxable income results in your tax liability. Because taxable income can include both earned and unearned income, it’s helpful to run through the different types of income and determine which ones are and aren’t taxable.
Taxable Social Security and Disability Income
Social Security is a government program funded by payroll taxes that provides both retirement income (commonly referred to as just “Social Security”) and disability income.
Are Social Security and Disability Income Taxable?
Social Security benefits for both retirement and disability are taxable only if your total income from your benefits and other sources exceeds certain thresholds. As of 2022, an individual filer who makes over $34,000 is subject to taxes on 85% of their Social Security, while a filer who makes between $25,000 and $34,000 must pay taxes on 50% of their benefits.
For more information about income taxes and social security, including join returns, visit: https://www.ssa.gov/benefits/retirement/planner/taxes.html.
Taxable Pension and Retirement Income
Retirement income refers to income from pensions, 401(k) plans, Individual Retirement Accounts (IRAs) as well as other privately funded retirement plans.
Are Pensions and Other Forms of Retirement Income Taxable?
Because pensions and most other retirement accounts, including 401(k)s and traditional IRAs, are tax-deferred, meaning you don’t pay taxes on the income you put into them during your working years, you do have to pay taxes on the benefits you receive from these accounts during retirement.
One exception is a Roth IRA. This type of retirement account isn’t tax-deferred. The income you contribute your Roth IRA is taxable as it’s earned, but when you claim the money at retirement, you won’t pay tax.
Taxable Crypto Income
Crypto refers to Bitcoin, Ethereum, Tether, Dogecoin and other “cryptocurrencies,” digital currencies in which a decentralized, cryptography-based system rather than a central authority records transactions.
Is Crypto Income Taxable?
Crypto income is definitely taxable. The IRS classifies crypto as property, and thus you are required to pay taxes anytime you sell it at a gain.
Is NFT Income Taxable?
NFT stands for non-fungible token, which is a digital asset representing a real-world physical object such as a photograph or piece of art. These tokens can be created by artists as a way to fund projects, and they are bought, sold and traded online by investors and hobbyists, often for extremely high dollar values.
NFT income is taxable. The IRS taxes the money made from creating an NFT at ordinary income rates. Gains from selling an investment NFT are taxed at capital gains rates.
Taxable Unemployment Benefits
Is Unemployment Taxable?
The IRS treats unemployment benefits like any other form of regular income, meaning you must pay taxes on unemployment income at ordinary rates.
Taxable Side Hustle Income
The work-from-home culture has made side hustles more popular than ever. Side hustle income can include money from rental houses or from properties listed on vacation apps like Airbnb. It can also include income from online ventures, often received through payment apps like Venmo and Zelle.
Is Rental Income Taxable?
Rental income is taxable, but you are allowed to deduct a host of expenses from it — basically any cost you incur getting your property ready to rent and maintaining it once it’s rented.
Are Payments From Venmo, Zelle, Cash App and Other Apps Taxable?
You must pay taxes on money you earn from a business or from providing goods or services regardless of how that money is paid to you. As of 2022, payment apps are required to report to the IRS if they pay an individual more than $600 in a calendar year.
Are Crowdfunding and Hobby Income Taxable?
Crowdfunding income refers to money received through fundraising efforts, often on platforms like GoFundMe or Kickstarter. Hobby income includes money made practicing a hobby not specifically undertaken for profit.
Both hobby and crowdfunding income are taxable. However, if you incur expenses carrying out your hobby, you can deduct them from your hobby income before paying taxes.
Gift income refers to money received without getting something in return. Gifts can come from a spouse, another family member, a friend or a charitable organization.
Is a Gift From a Spouse Taxable Income?
While most gifts are taxable above a certain dollar value, spouses are free to give each other as much as they want.
Is a Gift From Someone to Help With Medical Expenses or Tuition Taxable?
If a gift is made by a family member and used specifically for education or health care, it is also excluded from the gift tax.
Miscellaneous Taxable Income
Only the bounds of your own creativity and ingenuity limit the ways you can earn income, but two we haven’t mentioned to this point are gift cards and gambling.
Is a Gift Card Taxable Income?
Yes, gift card income is treated as ordinary income when given by an employer, such as for a bonus, and as gift income when given by a friend or relative.
Is Gambling Taxable Income?
Gambling winnings are taxed by the IRS and must be included on your tax return as “other income.”
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