Topic 02 · 5 min read
What Counts as Your Income
If it has value and someone gave it to you for something, assume it counts.
Income is not only wages. Tips, babysitting money, prize winnings, interest paid by a bank, and payments from an app for reselling or driving are all income. A small set of items — most gifts, inheritances, and scholarship money spent on tuition — is deliberately left out by law.
What to know
- Earned income
- Money you traded your time and effort for: wages, tips, commissions, and self-employment profit.
- Unearned income
- Money your money made: bank interest, dividends, and gains from selling an investment.
- No form, still income
- Cash paid for yard work or a weekend gig is taxable even when no paperwork is issued. The rule is about the money, not the mail.
- Common exclusions
- Birthday money from a relative, an inheritance, and a scholarship covering tuition and required fees are normally not taxed.
- Value, not just cash
- A prize vacation, a bartered service, or crypto received for work is income measured at fair market value on the day you received it.
The tax benefit
Knowing which dollars are excluded keeps you from overstating income; knowing which are included keeps you out of a notice letter two years later.
Worked example
Three sources, two taxable
Over one year a student earns $3,100 at a grocery store, $700 tutoring for cash, and receives $600 from grandparents at graduation. The $3,100 and the $700 are income. The $600 gift is not.
Watch out for
- Payment apps may report business-style payments; personal reimbursements from friends are not income.
- Scholarship money spent on room and board can be taxable even when tuition money is not.
- Forgiven debt sometimes shows up as income on a form.
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