In-kind income is a type of income in which you receive benefits or payments in a form other than cash. Depending on the type of in-kind income received, you may have to evaluate the tax consequences of receiving the in-kind income. It is important that you understand the classification of in-kind income and its relationship to other types of income.
In-kind income refers to non-cash benefits or payments. You can receive both earned or unearned in-kind income. Earned income is income received for work performed. In-kind income includes any benefit, other than cash, received for an item of need. An item in need can includes utilities, food, shelter and clothing. Additionally, you can receive in-kind income for less than the fair value of the item or for free.
Other Types of Income
Your total income includes earned income, unearned income and deemed income. You receive your earned income from wages or from earnings received from self-employment. Unearned income is income received from other, non-employment sources. For example, you would consider pensions, unemployment benefits, Social Security benefits, interest income, state disability or cash from friends and relatives unearned income. Deemed income is the income of your spouse, your sponsor or your parent with whom you live.
Examples of In-Kind Income
In-kind income can consist of free rent in exchange for care-taking duties. However, if the caretaker receives a paycheck with a deduction for rent, the gross earnings are not in-kind income, but earned income. You can also receive in-kind income if a friend or relative provides you free room and board. Another example of in-kind income is the exchange of services, such as babysitting or housekeeping services.
In-kind income requires evaluation for tax purposes when a person or an organization gives in-kind income to an assistance unit such as a charity. You should not consider non-need items earned by or provided to the assistance unit in-kind income. Furthermore, you can´t automatically classify income as in-kind income because the recipient did not pay for a need item. Any in-kind income provided by a private, nonprofit organization is exempt from classification as income. Additionally, in-kind income for partial items of need also is exempt from classification as income. A partial item of need is provided in part or for less than a full calendar month.
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