Is It Taxable Income or Isn't It?

Education Assistance - Don't expect Uncle Sam to foot the bill for courses you took to pursue a new career. Employer-provided education allowances are tax-free only if the education is required by your employer, is necessary for you to function in your current job, or meets other IRS requirements. You may be able to take advantage of special education benefits such as the Hope or Lifetime Education credit programs, but be sure you understand and follow their requirements fully.

Company Stock - Generally, if you receive company stock as payment for services, you must include the value of the stock as pay in the year you receive it. However, if the stock is subject to substantial risk of forfeiture, you do not need to declare its value as taxable compensation until the restrictions no longer apply. Generally, the taxable income is the difference between the amount you pay for the stock, if any, and its value at the time its restrictions are removed.

If you are eligible for stock options as part of your employment compensation plan, be sure you fully understand and follow the special, complex rules that cover this type of income.

Child or Dependent Care Plans - Even free day care for your children can be subject to tax. Employer-provided day care valued at over $5,000 for married couples filing jointly, or $2,500 for married individuals filing separately, is taxable.

Job-Related Benefits

Unemployment Benefits - All unemployment benefits you received in 2000 from a state agency or the federal government are treated as taxable income for federal taxes. You should receive Form 1099-G showing the amount of the payments. New Jersey does not tax unemployment benefits.

Severance Pay - Severance pay provided by your employer is taxable by the IRS

Disability Income - Generally, you must report money you receive for disability assistance through an employer-paid accident or health insurance plan as income to the IRS. New Jersey excludes disability benefits.

Interest Income

Interest Income on Debt - Keep in mind, too, that you also have a tax liability if you have been collecting interest on money you generously loaned to friends or relatives. Any earnings on interest from loans must be reported to the IRS.

Treasury Bills, Notes and Bonds - Interest on securities issued by the federal government is fully taxable on your federal income tax return, but not on your New Jersey income tax return.

Other

Prizes and Awards - Other than certain employee achievement awards, prizes and awards are generally taxable.

Lottery and Sweepstakes Winnings - Whether you win cash in a lottery or a new car through a church raffle, you're required to let Uncle Sam know about it - and pay the requisite tax on the value of what you received.

Gambling Winnings - Finally, remember that even gamblers must ante up to the IRS. All gambling winnings in excess of gambling losses are taxable. However, if you lose more than you win, your losses (in excess of your winnings) are not deductible.