Lesson 4
Types of Income You Must Report
Time: ~12 to 15 minutes
The government taxes income, not just paychecks
Any money you earn can be taxable, even if it does not come from a regular job.
A lot of young people think taxes only apply to people with full time jobs. That is not true.
If you earn income, there is a strong chance it must be reported to the IRS.
Income is taxable whether it is formal, informal, or from side work.
The most common income types for teens and young adults
Job income (W-2)
If you work for an employer, they send you a W-2 at the end of the year.
This form shows:
Total money earned
Taxes already withheld
This is the most straightforward income type.
Independent income (1099)
If you earn money without an employer withholding taxes, it is considered self employment income.
Examples:
Babysitting
Tutoring
Freelancing
Selling products or services
Online businesses
Social media income
Companies may send you a 1099 form if they paid you.
Even if you do not receive a form, you still must report the income.
Tips
Money earned as tips from service jobs is taxable.
Many young workers forget this.
Tips are considered income and must be reported.
Bank interest
Money earned from savings accounts also counts as taxable income.
Banks usually send forms if interest exceeds a certain amount.
Even small earnings are technically income.
Why reporting all income matters
The IRS receives copies of forms sent to you.
If you leave income off your tax return:
The IRS notices
You can get penalties
You may owe extra taxes later
Unreported income is one of the most common tax mistakes.
Side hustle warning for young people
If you earn money outside a job:
Taxes are not automatically withheld
You may owe later
You must still report it
Many teens get surprised because they think cash income does not count.
All income counts.
Income reporting at a glance
W-2 Income
From employers
Taxes already withheld
1099 Income
From self employment
No taxes withheld
Tips
From service jobs
Must be tracked and reported
Interest
From bank accounts
Forms sent if over threshold
Key vocabulary
Taxable income: Money subject to taxes
W-2: Employer income form
1099: Independent income form
Tips: Taxable service income
Interest income: Money earned from banks
Quick recap
- All earned money can be taxable
- Job income comes from W-2
- Side income comes from 1099
- Tips are taxable
- Bank interest counts
- IRS tracks reported income
Quick Check
1. Which form shows income from an employer?
2. Does side hustle income have to be reported?
3. Are tips considered taxable income?
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