Ask The Taxgirl: Lotto Winnings & Other Income

Taxpayer asks:

I deliver newspapers. Wondering if the Christmas money I receive is taxable. Also, why are lotto winnings taxable? How are you working for that money?

Taxgirl says:

I believe that the money that you receive at Christmas is taxable. It is not really a *gift* (read more about gifts and bonuses here). It’s an acknowledgment of good service. In that way, it’s like a bonus or a tip. And it would be taxable.

Regarding the lotto winnings, I know it’s an irritating rule but there’s nothing in the tax code that says income has to be “earned.” Both “earned” and “unearned” income are taxed.

No disrespect to my readers with fat investment accounts, but dividends and interest aren’t really the fruits of your labor either. But the IRS doesn’t care.

You can think of income tax as a tax on your “accession to wealth” (wouldn’t it be nice if we were all acceding to wealth a little more quickly?). Increases in your wealth – whether through your own efforts or not – are generally taxable.