Let’s say you’re walking down the street and out the corner of your eye you spot a $100 bill on the ground. Finders keepers, right? Not so fast. Whether you find money or property, the IRS expects you to report your windfall, so they can tax you accordingly. But their greed doesn’t stop there, check out what other surprising things are taxable.
Social Security benefits
The average Social Security check is a little more than $1,400 a month. Depending on your lifestyle, that may not be enough to cover all the bills. Although the obvious solution is to earn extra income, it can actually end up costing you money. Social Security benefits usually aren’t taxable if it’s your only source of income. However, those rules go out the window when additional income is involved. Single filers can be taxed on up to 85% of their benefits if their combined income exceeds $25,000. Married couples filing a joint return can face the same fate once they earn over $32,000. If you receive Social Security and additional income, use the formula below to determine if you’ll need to pay taxes on your benefits.
Your adjusted gross income + Nontaxable interest + ½ of your Social Security benefits = Your combined income
Sometimes when you’re over your head in debt, a lender will agree to settle for less. If that happens, the IRS expects you to pay taxes on the canceled amount. Even if the cash never touches your hands, the IRS still views it as income. Typically, you’ll receive a Form 1099-C from your lender if the canceled amount exceeds $600.
Receive alimony from an ex-spouse? Unfortunately, you’ll be the one paying at tax time. On the bright side, any child support and property settlement payments you receive are tax-free.
Unemployment benefits help countless people keep the lights on while they’re in-between jobs. But, by no means is it free money. It’s taxable income for which you will receive a Form 1099-G to report on your tax return. The simplest way to avoid an unwanted surprise is to have taxes withheld from your pay.
With tuition prices continuing to rise, it’s no surprise that many students rely on scholarships to help foot the bill. However, winning a scholarship may get more than you bargained for. Generally, if your scholarship is used to pay for tuition, enrollment fees and course-related expenses, you’re in the clear. But, if your free ride covers room and board or living expenses, you’ll probably have to pay up.
Gambling winnings and prizes
Won money from a scratch off game? You’re not the only one doing a happy dance. When you win, Uncle Sam does too. It doesn’t matter how you score your windfall, the IRS expects you to pay taxes on cash and non-cash prizes. You’ll receive a Form W2-G if you win:
- $600 or more and it’s at least 300 times your wager
- $1,200 or more from a bingo game or slot machine
- $1,500 or more from a keno game
- $5,000 or more from a poker tournament
Crowdfunding sites like Kickstarter and GoFundMe make it easy to raise money for various causes. Collecting donations can make it easier to make your dreams a reality but you won’t walk away scot-free. If your campaign raises more than $20,000 from at least 200 people, Uncle Sam wants his cut. Don’t worry, ezTaxReturn makes reporting your income fast, easy and stress-free when you use them to do your taxes.