As a general rule, all the income you receive in the form of money, property, or services is subject to the federal income tax unless it is specifically exempted by law. On Form 1040 that you use to file your annual federal income tax return, there is a separate line at the end of the income section that indicates “Other income”. This line is for reporting all income that is not reported on another line of the return.
There are several types of income that you may have received that must be included on this line. On line 21 of Form 1040, you have to indicate the type of income and the corresponding amount. If you have more than one type of other income, you can report the details on a separate attachment to your return, and include the total amount on line 21 of Form 1040.
Canceled Debt
Generally, when a debt of yours is canceled, you must include the canceled amount in your taxable income, unless the debt was canceled as a gift or bequest. A debt is any amount you are obligated to pay, or that is guaranteed by any of the property that you hold.
When the cancellation relates to a debt you have in your business, or that is guaranteed by business property, you would report the cancellation as business income on Schedule C or C-EZ, or on Schedule F if you have a farming business. Cancellations of personal debts are reported on the other income line on Form 1040.
Distributions from a Coverdell Education Savings Account or from a Qualified Tuition Program (529 Plan)
The portion of distributions from a Coverdell account or a 529 Plan that represent a return of the amounts contributed to the account or plan are not included in taxable income since they represent a return of your investment in the account or plan. And the gains that are distributed are not taxable to the beneficiary if they are used to pay qualified education expenses. But the portion of a distribution that does not represent a return of your investment, and that is not used to pay qualified education expenses is taxable. And, if part of the distribution is taxable, there is an additional tax that applies.
Distributions from a Health Savings Account or an Archer Medical Savings Account
Amounts withdrawn from these accounts are not taxable provided they are used to pay qualified medical expenses, which are generally those for which you could claim an itemized deduction for medical expenses on Schedule A of Form 1040. When the withdrawals are not used to pay qualified medical expenses, they must be included on your tax return as other income.
Prizes and Awards
Prizes obtained in drawings or contests must be reported as other income. When you receive prizes or awards in the form of goods, the fair market value of the goods is the amount that has to be included in taxable income. Awards or bonuses received by employees are generally included in salaries and wages for tax purposes, and are not reported as other income.
Generally, the value of prizes and awards received in recognition of accomplishments in religious, charitable, scientific, artistic, educational, literary and civic fields must be included in taxable income. But there are cases where these types of prizes and awards are not taxable. If you meet all of the following tests, you do not have to include the prizes and awards in your taxable income: You were selected for the awards without any action on your part; you are not required to render services in the future as a condition of receiving the award, and the award is transferred directly to a governmental entity or a tax-exempt charitable institution that you designate.
Gambling Winnings
Gambling winnings, including winnings from lotteries and raffles, are taxable. You can take a miscellaneous itemized deduction on Schedule A for gambling losses up to the total amount of your gambling winnings. If you receive a W-2G form reporting your winnings and the tax withheld, you should report the amount in box 1, the winnings, as other income on line 21 of Form 1040, and the amount in box 2, the federal income tax withheld, on line 64 of Form 1040.
The payments you receive for jury duty are included in other taxable income. When you return this payment to your employer because you continue to receive your salary while on jury duty, you would include the reimbursement to your employer in the total reported on line 36 of Form 1040, and would write “Jury Duty” and the corresponding amount on the dotted line alongside the total reported on line 36.
Alaska Permanent Fund Dividends
These are payments from Alaska’s mineral income fund. The state of Alaska sends each beneficiary a document indicating the amount of income to be reported.
Alternative Trade Adjustment Assistance Payments
These are payments received from the Demonstration Project for Alternative Trade Adjustment Assistance for Older Workers. You should receive a W-2G form showing these payments in box 5.
Recoveries
Reimbursements or recoveries of amounts that were claimed as a tax deduction or credit in a previous year must be included in your taxable income in the year you receive them. You would include as income the amount taken as a deduction or credit that reduced your tax in a previous year.
A common example are refunds, reimbursements, or rebates of amounts claimed as itemized deductions on Schedule A, such as medical expenses, taxes on real property, or interest on a mortgage loan. In determining the amount of the recovery that has to be included in your taxable income, you should take into account that certain itemized deductions are subject to a threshold. For example, medical expenses are deductible to the extent they exceed 7.5% of your adjusted gross income. Therefore, you would include in your taxable income only the portion of a recovery that corresponds to the amount of the expense that effectively reduced your tax in the previous year (the excess over 7.5% of your adjusted gross income that year).
When you receive a reimbursement of expenses that would be deductible in the same year you receive the reimbursement, you would reduce the amount you can deduct, and it would not be necessary to include the reimbursement in other income. Instead, you would report the net amount of the deductible expense, that is, the total amount you paid less the amount that was reimbursed to you.
Federal income tax refunds are not included as other income since this tax is never deductible. Refunds of state income taxes must be included in taxable income for federal income tax purposes if you claimed an itemized deduction for the state income tax paid in a prior year. In any case, there is a separate line on Form 1040 (line 10) for reporting these refunds.
Income from the Rental of Real Property
When you are in the business of renting property, you would report your rental income on Schedule C or C-EZ, Profit or Loss from Business. But if you rent a property for the purpose of generating income, but you are not in the business of renting, you would report the rental income as other income on your tax return. This could be the case if you rent out your home part of the year, or rent out a room in your home. If you have expenses related to a rental that does not constitute a business, you would include the expenses in the total for line 36 on Form 1040, and write “PPR” and the corresponding amount on the dotted line next to the total for line 36.
Income from an Activity Not for Profit
Income from an activity that you carry out without the intention of generating a profit, such as a hobby, is included in other income. Expenses related to that activity are deductible to the extent you have income from the activity and are claimed as miscellaneous itemized deductions.
Loss on Corrective Distributions of Excess Amounts Deferred according to a Pension Plan
When you contribute more than the maximum amount allowed in a year to a retirement savings plan, you can withdraw this excess amount in a corrective distribution from the plan. If it turns out that you have a loss on this withdrawal, you would report the loss as a negative amount on line 21 of Form 1040, for other income.
Dividends on Life Insurance Policies
Dividends received on a life insurance policy are included in other income when they exceed the total of all the net premiums paid for the insurance contract.
Another amount that is reported on line 21 of Form 1040 does not constitute income, but it is reported on this line anyway. This is the Foreign Earned Income Exclusion, which is determined on Form 2555 or 2555-EZ. The amount of the exclusion is reported on line 21 as a negative amount, writing “Form 2555” and the corresponding amount on the dotted line next to the total for line 21.
Income that is Not Included on the Other Income Line
Self-employment income and fees you receive as a notary public are not included on the other income line. These are reported on Schedule C or C-EZ, Profit or Loss from Business, or on Schedule F, Profit or Loss from Farming, as applicable.
Compensation you receive when you are not an employee that are reported on Form 1099-MISC, are not included in other income. These types of income are reported on other lines of your tax return, according to the type of income. There is a table in the instructions for Form 1040 that indicates where the different types of income from Form 1099-MISC should be reported.
Certain types of income are non-taxable and do not have to be reported on your tax return. Some examples of non-taxable income include child support payments, money or the value of property you receive as a gift or bequest, and the proceeds from a life insurance policy that you receive upon the death of the insured.
