Taxpayer asks:
I made 599 from one employer and 150 from another employer. Do I have to claim these amounts as income since they are below the $600 threshold?
taxgirl says:
Yes. Income is income, no matter the amount.
The reason that this gets confusing for individual taxpayers is that the threshold for required reporting from the payor is $600; in other words, if payments are over $600, a federal form 1099 must be issued. There is no such corresponding requirement for reporting the income: you have to report all of your income, from whatever source, on your tax return unless it’s otherwise excluded.
This usually leads to the question, “How will the IRS know if I don’t report it?” They might not. But what if they do? It’s easy enough for the IRS to trace this, trust me. I have represented a number of taxpayers who assumed that it would be fine to leave out a little check here and there on purpose. But it’s not fine. If you get caught, you will be responsible for paying the tax plus interest and penalty. You may also be subject to criminal prosecution: underreporting is a crime and you’re signing a tax return on penalty of perjury.
You should also keep in mind that failing to report income may lead to the loss of certain deductions and credits which rely on taxable income limits (such as childcare and dependent credits).
Additionally, leaving out income on your tax returns can affect other financial transactions – such as mortgage and credit applications (you don’t want to be in a position where you have to explain to the bank that you really, really make more money, you just didn’t include it on your taxes).
And of course, there’s the whole morality argument. It’s the law. And it’s the right thing to do. That alone should count for something.
Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to Ask The Taxgirl.
