The Internal Revenue Service is the federal agency with the mandate to collect income taxes. The federal income tax is a pay-as-you-go type of tax system. Even though you must file your individual income tax return once each year, typically by April 15 for the previous calendar year, you must pay your taxes throughout the year. If you are employed, your employer usually withholds federal income taxes from your paycheck. If you are self-employed, you may have to pay your taxes quarterly. But wages are only one among many forms of income the IRS requires taxpayers to report.
The IRS refers to money you receive for working as an employee as employee compensation, which may come in a variety of forms, from hourly wages to an annual salary. Employee compensation includes tips, commissions and bonuses and is usually paid with money, such as cash or a paycheck that you can spend, but it may also come in the form of fringe benefits such as stock options. Your employer will normally report your employee compensation to you on Form W-2 after the end of the tax year. Employee compensation is reportable income.
Income that you receive for services you provide independent of an employer the IRS considers self-employment income, which is typically paid with money, such as cash or a check that you can spend, but the payer may or may not provide any record of such payments. If you are compensated by a single payer for self-employed services of more than $600 in a single tax year, the payer should provide you with a Form 1099. Self-employment income must be reported to the IRS regardless of whether the payer provided documentation of the payment.
Dividends and Interest
Any interest that is credited to your account and that can be withdrawn for your own use or that is paid to you directly is considered by the IRS to be taxable income which must be reported. It views any distribution of money, stock, or property paid to you by a mutual fund or corporation to be a taxable dividend that must be reported. Interest on certain bonds issued by states and municipalities, commonly referred to as municipal bonds, may be exempt from federal income taxes, but the interest must still be reported when you file your federal income tax return.
Other Forms of Taxable Income
The IRS considers any income you receive during the tax year to be reportable and taxable income unless it is specifically exempted from such reporting by law. You must report gambling winnings, investment income, royalties, bartered income, income from babysitting or mowing the neighbor's lawn, capital gains, awards, prizes and contest winnings. You must report income you earned in another country. Income received for illegal activities must be reported. At no age is a taxpayer exempt from reporting income.
- Internal Revenue Service: What is Taxable and Nontaxable Income?
- Internal Revenue Service: Publication 525 Taxable and Non-Taxable Income
- Internal Revenue Service: Publication 550 Investment Income and Expenses
- Wells Fargo: Reportable Income
- Securities Industry and Financial Markets Association: Taxation of Municipal Bonds
- Interactive Brokers: Interest Income: Is there reporting on Municipal Bond interest?