Prizes, Awards, and Bonuses

The fair market value of prizes and awards must be included as income for federal income tax purposes. Generally, the fair market value of awards or bonuses given to an employee by his employer in recognition of good work must be included in taxable income as a part of wages.

Unemployment Compensation

You lost your job a few months ago and have been receiving state unemployment compensation benefits. To add insult to injury, your neighbor tells you that he thinks the benefits are taxable! Could that possibly be right?

Welfare and Other Public Assistance Benefits

If you are the recipient of benefit payments from a public welfare fund, you do not have to include them in your income. In addition, any payments from a state fund that you received as a victim of a crime should not be included in income. However, if you paid medical expenses that were reimbursed by a victim's fund, you are not entitled to a deduction for those expenses.

Special Rules for Clergy

A taxpayer who is a member of the clergy is required to include offerings and fees received for special services such as marriages, funerals, baptisms, bar mitzvahs, etc., as part of his income along with his regular compensation. However, if the offering or fee was not made to the clergy member but was made to the church or synagogue, it is not taxable to the clergy member. If the taxpayer as a member of the clergy gives these outside earning to the religious institution, he must still include them in taxable income. A duly ordained minister, rabbi, or cantor is not taxed on the rental value of a house provided as compensation. He or she is also not taxed on a housing allowance (parsonage) if that allowance is used to pay rent, to make a down payment on a house, to make mortgage payments, or for utilities, interest, tax, or repair expenses of the house.

Traditional Individual Retirement Arrangements

In an attempt to encourage personal savings for retirement, Congress has established a plan that gives you tax advantages for setting aside money for retirement. When you contribute to an individual retirement arrangement (IRA), you may be entitled to deduct some or all of the contribution, and the amounts in the IRA, including earnings, are usually not taxed until they are distributed. The advantage to delaying taxation is that many people are in a lower tax bracket after retirement, thereby reducing the amount of tax paid on the contributions and earnings.