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What’s Taxable Income And What Is Not, According to the IRS

Updated February 11, 2025

A waitress provides drinks to two customers at a restaurant.

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There are an enormous number of side gigs that could help you earn a little extra cash each month. Whether you want to drive for Uber, deliver groceries, try your hand at freelance graphic design or even officiate weddings, there have never been more opportunities to work for yourself.

Come tax season, however, things can get confusing — especially if you’ve earned income from multiple sources. You might find yourself wondering which income is actually taxable.

As it turns out, the IRS has pretty much thought of everything. There are a lot of particular rules about what the IRS considers a taxable income source and what it doesn’t — but, in general, most sources are subject to taxation.

We chatted with tax experts to tackle this complex question and ease some of the confusion. We then compiled this list of obvious and not-so-obvious taxable income sources you should know about.

For a full reference of what the IRS considers taxable versus nontaxable income, take a peek at its handy guide explaining all of the applicable tax rules for preparing your next return.

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What Does the IRS Actually Consider Taxable Income?

Here are the things you must report to the IRS as taxable income.

1. Your Salary

This one is the type of income most people are familiar with. If you get a steady paycheck from an employer, you need to report this income to the IRS. Your salary also includes bonuses and commissions.

Bonuses or cash awards given to employees generally must be included in your income as wages. However, there are certain rare circumstances where bonuses can be excluded from income depending on how your employer awards them.

2. Tips

Waitresses, waiters, bartenders and other folks who work for tips must report them as income to the IRS. This includes cash tips.

“All income must be reported, even if it’s not deposited into the bank. And yes, the IRS and state [tax authorities] have ways of figuring out that there may be unreported income,” said Abby Eisenkraft, an IRS enrolled agent, accredited tax adviser and preparer, retirement planning counselor, and the author of “101 Ways to Stay Off the IRS Radar.”

According to the IRS website, the value of noncash tips including passes, tickets or other valuable items are also considered income and are subject to tax.

The IRS suggests that employees keep a daily tip record, report tips to their employer and report all their tips on their income tax return.

3. Freelance Income

As a freelancer, you’ll likely receive a slew of 1099-MISCs from each client, and you’ll report that income on Schedule C. Even if you don’t receive a 1099-MISC from the company you worked for, you still need to report it, according to Eisenkraft.

Freelancers are responsible for paying regular income tax and a self-employment tax. The self-employment tax is currently 15.3%. Twelve point four percent of that is for Social Security and 2.9% is for Medicare. If you had an employer, these taxes would be taken out of your paycheck automatically, with your employer paying half of them. But because you’re working for yourself, the responsibility to get these taxes to the IRS is 100% on you.

TIP: On your Schedule C, you can also deduct business expenses, which could lower your taxable income from your freelance work.

4. Worldwide Income

Let’s say you live in the United States but earn income from a company based overseas. Even if you don’t receive a W-2 or 1099 from the overseas company, the IRS wants to know about this income. Worldwide Income must be reported to the IRS by filling out Form 2555.

Worldwide Income applies to earned income such as wages and tips as well as unearned income like interest, dividends, capital gains, pensions, rents and royalties.

“If you are a U.S. citizen or resident alien, you must report income from all sources within and outside of the U.S,” according to the IRS website.

Now, if you’re living in another country for more than 330 days out of the year and earning all of your income from a business in that country, you may qualify for the foreign earned income exclusion. This rule says the first $126,500 of your income is not taxable by the U.S. government.

However, your income will likely be taxable by the country you’re living in. And if you breach the $126,500 limit, Uncle Sam will start taking his share, too.

5. Bartering

Bartering doesn’t typically feel like money in your pocket. But if you trade a product or a service for something that has value, the IRS considers this income, said Eisenkraft. The rules and procedures for reporting bartering income depend on the type of bartering that takes place, so if you’re big into making trades, check out the IRS’s Bartering Income page.

One example of taxable bartering would be a plumber exchanging plumbing services for the dental services of a dentist.

6. Gambling Winnings

Gambling winnings are fully taxable, and you must report them on your tax return.

“Gambling income includes but isn’t limited to winnings from lotteries, raffles, horse races and casinos. It includes cash winnings and the fair market value of prizes, such as cars and trips,” according to the IRS website. And, yes, your winnings from sports betting apps are taxable, too.

Theoretically, you could deduct your gambling losses, which might help offset some of the pain. But in order to use this strategy, you’d have to take an itemized deduction. Since the passage of the TCJA in 2017, most people are better off taking the standard deduction. Unfortunately, taking the standard deduction effectively removes the ability to deduct your gambling losses.

7. Jury Duty Pay

If you served on a jury and got paid for your time, the IRS wants to know how much money you earned. “If you turn over your jury duty pay to your employer in exchange for continuing to receive salary pay, you can deduct that amount,” said Josh Zimmelman, owner of Westwood Tax & Consulting in New York.

A short quiz featured on the IRS website will help you determine whether or not your jury duty payment is taxable.

8. Hobby Income

Even if your love of buying and selling old stuff is just a hobby, you have to tell the IRS if you make money from antiquing (or any other hobby). The same applies to items that you sell or flip online.

Unfortunately, you can no longer deduct your hobby expenses in the process – unless you’re one of the rare taxpayers that benefits from an itemized deduction over a standard deduction. Even if you can itemize those deductions, you can’t itemize so much that your hobby operates at a loss.

The primary distinction between a business and a hobby is intent — in this case, intent to make a profit. The IRS has a useful list of factors to consider when determining if your hobby is actually classified as a business. In either case, though, you need to report your earnings.

9. Illegal Activity

If you earn income from illegal activities, “such as money from dealing illegal drugs,” the IRS says you must report it. This may seem like a head scratcher, but the way they got Al Capone into prison was actually by pursuing him for tax evasion. You don’t report on an “illegal activity” line, so it’s not like you’re necessarily telling the IRS you’re not above board. You’re just protecting yourself from committing yet another crime when you report this income.

One way this issue pops up that’s become more socially acceptable in recent years is through the sale of cannabis. This might be legal at the state level if you’re selling through proper channels as a dispensary, but at the federal level it’s still illegal – even if the federal government hasn’t pursued people for state-sanctioned sales since before the Obama years.

Regardless of the circumstances, income from illegal activity must be reported.

10. Bribes

Speaking of stuff that’s illegal, the IRS also says you must report any bribes you receive as income. There are even separate sections about stolen property and kickbacks — you need to report these, too.

An example of a taxable kickback would be if you sell cars and you help arrange car insurance for your buyers in exchange for part of the insurance broker’s commission. This form of bribery is one the IRS says must be included in your tax income.

11. Stolen Property

No joke! If you stole property, you have to report its value as taxable income for the year in which you stole it. If you’re having regrets, though, there is a way out. Simply return the stolen goods during the same year in which you stole them, and you won’t have to report to the IRS.

12. Canceled Debts

If creditors forgive some or all of your debt, the IRS considers this income. There are some exceptions to this rule, such as debt canceled as a gift or inheritance, and student loan debt forgiven under certain programs.

You can view the full list of exceptions (it’s a long one!) on the IRS website. Debt forgiveness is a complex topic — we highly recommend discussing your specific situation with a tax expert.

13. Prizes and Awards

Prizes and awards are also considered taxable income by the IRS. This extends to “if you win a prize in a lucky number drawing, television or radio quiz program, beauty contest, or other event, you must include it in your income.” For example, if you won a $50 prize for a drawing contest, you would need to report this source of income to the IRS.

This also extends to prestigious awards won from accomplishments such as a Pulitzer, Nobel, or similar prizes. There is, however, a list of requirements that would exclude you from needing to report this income.

A woman walks through flooded water near her home after Hurricane Ida hit. — AP Photo

**What Does the IRS Not Consider Taxable Income?**

Here’s where things start to get interesting. There are also dozens of things the IRS does not need you to report as income. Again, it’s a long list, so be sure to check before filing your taxes.

1. Disaster Relief and Disaster Mitigation Funding

If you’ve been affected by hurricanes, fires or any other natural disaster, assistance funding is often excluded from your taxable income. One of the only ways it could be taxable is if you also received an insurance payout for the same expense the disaster relief funding was supposed to cover.

If you receive funding to help mitigate or reduce the damage of future natural disasters to your property, that money is often excluded from your tax return, too.

2. Olympic Medals and Other Winnings

Olympic and Paralympic medals come with associated prize money. You won’t have to pay federal income tax on the winnings if you made less than $1 million that year. In the past, athletes were subject to a federal “victory tax” on their winnings, but no longer.

3. Child Support

Divorce has confusing tax implications. Fortunately, one thing is clear: child support is not considered taxable income. This is good news because raising kids is expensive — every penny helps.

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4. Carpool Money

If you’re a regular driver in a carpool, the IRS does not consider any money you get from your passengers as income, unless you started a legit, for-profit carpooling business. The IRS considers these payments reimbursement for your expenses.

5. Holocaust Victim Restitution

The IRS does not consider restitution payments to Holocaust victims (or the heirs of victims) taxable income. This also includes European insurance payouts made as a result of World War II.

6. Crowdsourced Money

Crowdsourced funds from sites like GoFundMe are not considered taxable income by the IRS — provided a few conditions are met. The money must be given as a gift, with no goods or service provided in exchange, and it must go to an individual, not a business.

7. Alimony

For the most part, if you receive alimony (court-ordered payments from one spouse to another) after a divorce, you do not have to report it as income, according to the IRS. There is an exception. If your divorce was settled prior to January 1, 2019 and the settlement agreement hasn’t been touched since, then the alimony is taxable to the recipient and deductible to the person paying it.

Our list isn’t exhaustive by any means, but it should give you a good sense of how the IRS views your money. If you’re earning income that we haven’t covered here, be sure to consult with a tax expert or the IRS directly.

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Pittsburgh-based writer Brynne Conroy is the founder of the Femme Frugality blog, DISABILIFINANCE and the author of “The Feminist Financial Handbook.” She is a regular contributor to The Penny Hoarder. Reporting by contributors Dave Schafer and Caroline Gaspich and former contributor Sarah Kuta is included in this story.