Income usually means any money that you receive unless there’s an exception.
What counts as income?
US law under 26 USC § 61 defines gross income as all income you receive from any source unless there’s a specific exemption under the law.
Income isn’t just money you earn from a job. Even finding buried treasure counts as taxable income that you have to pay taxes on.
Passive income sources such as bank account interest, earnings from stock investments, or cryptocurrency mining also count as income.
Why don’t gifts count as income?
Gifts usually don’t count as income because there are special rules in the tax code for gifts.
The gift receiver almost never has to pay taxes on a gift.
A gift giver may have to pay a gift tax if he or she gives gifts worth millions of dollars during his or her lifetime. Gift givers may also have to file an annual gift tax return if their gifts total more than a certain amount.
There are also strict rules on what counts as a gift. In order for something to be a gift, there generally can’t be any expectation of getting something in return now or in the future.
When there is an expectation of a return, a supposed gift is usually a sale or trade that may be taxable.
The IRS has also ruled that tips to someone who provided a service are not gifts even if the tipper calls it a gift.
What is taxable income?
Taxable income is the amount of your income that’s subject to taxes. Even when something is legally classified as income, the tax law may exempt it from taxation.
A common example is Social Security benefits. You usually don’t have to pay taxes on Social Security unless your income from other sources exceeds a certain amount.
Bond interest is another special situation. Federal treasury bond interest is generally exempt from state taxes. State municipal bond interest is generally exempt from federal income tax.
You may also be entitled to claim deductions that reduce your taxable income. For example, if your income is $50,000 and you’re entitled to a $5,000 deduction, your taxable income is $45,000.
What is adjusted gross income?
Adjusted gross income is a special line item on your tax return that affects your eligibility for certain tax deductions and tax credits. It may also be used as your qualifying income for other government benefits.
Adjusted gross income is your total gross income minus certain adjustments like deductible retirement contributions. It will usually be more than your taxable income.
What is median income?
Median income is the middle income level for a defined area. Half of the people will make more, and half will make less.
Many government programs are based on whether you make less than the median income level or a certain percentage of the median income level. They may go by your gross income or the adjusted gross income on your tax return.