What is Taxable Income?
Learn what to claim as taxable and nontaxable income to reduce your tax liability in this article.
Taxes
As a family caregiver, filing for taxes is complicated. What can you deduct? Do you need a 1099 form? Do you need to file at all? What about the VA caregiver stipend? Family as caregivers may need to learn what's taxable income and what expenses are deductible. Or how much of taxes history matters when filing. Knowing the rules will help you file accurate taxes and receive tax refunds.
The IRS regards most income sources as taxable, but a few exceptions are nontaxable.
Taxable income is any gross income earned that determines the amount of tax you owe, including any wages, tips, salaries, and bonuses from employers. Investment and unearned income are also included.
The following are regarded as nontaxable income by the IRS:
Sometimes the following items may be nontaxable. Givers Taxes can help you determine what should be included in your return.
Unearned income is any income that does not come through work; it is also known as "passive income." On the other hand, earned income is any compensation for performing a service like work. Unearned income may include interest from savings accounts, bond interest, alimony, or stock dividends.
Different types of caregiving income have other tax implications. Always research specific rules for each kind of income, such as wages, self-employment income, and payments from public assistance programs. Certain expenses related to family care can be deductible. For instance, medical and long-term care insurance premiums may be deductible depending on the amount paid.
Report wages you receive from your employer or a caregiving agency if you earn more than $600. Income includes reimbursements and benefits associated with caregiving, such as health insurance premiums, transportation expenses, lodging costs, and more. Depending on your situation, other taxable income could include the proceeds of life insurance policies or the proceeds of the sale of property given to a family caregiver for their services.
Payment for services needs to be reported to the IRS. This can include anything from investment income to debt cancellation to income from a trust. Unearned income consists of any unemployment compensation and taxable social security benefits. Document any unearned income received for services and report it when you file for taxes with the IRS.
Family caregivers often receive wages or salaries in return for caregiving services. Tips and bonuses, as well as any commission, are considered earned income. Report earned income over $600. For example, if your employer gives you a $1,000 Christmas bonus or tips you regularly, that income is taxable. The IRS considers this taxable earned income if they tip you after you deliver groceries or when you provide transportation.
Payments received as part of the VA Caregiver Stipend program are taxable and must be reported on your federal income tax return. The stipend is subject to federal and state taxes and self-employment taxes such as social security and Medicare. Document any payments received from the VA Caregiver Stipend. While the IRS does not often audit individuals, you may need the information if the IRS requires you to verify your income.
Remember to account for caregiving expenses when you file your taxes. These apply primarily to out-of-pocket medical costs like medical supplies, hospitalization, and long-term care insurance. Document all of your expenses to reduce your taxable income. Keep track of receipts and other proof of payments. Include this paperwork when filing for taxes.
You can deduct caregiving expenses if costs exceed 7.5% of your income. What counts for tax deductions?
You also may be eligible for a Child Tax Credit or the Earned Income Tax Credit. These significantly reduce your tax burden. Review your taxes history, document everything, and keep receipts. Many families depend on their tax refund from these credits.
Tax deductions minimize your overall tax burden. For example, if your taxes owed are less than your tax credits, then you can receive a tax refund. Speak with a tax preparer about your tax deductions.
Income is any payment you get for providing a service, but there are other forms of income, like property and services in-kind. Knowing what to include can make the tax filing experience easy and hassle-free. To avoid complications, use the information above to calculate and declare your taxable income accurately.
Katie Wilkinson is the Head of Marketing at Givers. Watching her dad take care of her mom when she was sick gave her a front-row seat to witness the weight of being an unpaid caregiver. Katie is passionate about the intersection of healthcare and technology, and making sure that unpaid family caregivers get the care and support they deserve.
