What "Other Income" Has to Be Included on Your Tax Return?

As a general rule, all the income you receive in the form of money, property, or services is subject to the federal income tax unless it is specifically exempted by law. On Form 1040 that you use to file your annual federal income tax return, there is a separate line at the end of the income section that indicates "Other income". This line is for reporting all income that is not reported on another line of the return.

There are several types of income that you may have received that must be included on this line. On line 21 of Form 1040, you have to indicate the type of income and the corresponding amount. If you have more than one type of other income, you can report the details on a separate attachment to your return, and include the total amount on line 21 of Form 1040.

Canceled Debt

Generally, when a debt of yours is canceled, you must include the canceled amount in your taxable income, unless the debt was canceled as a gift or bequest. A debt is any amount you are obligated to pay, or that is guaranteed by any of the property that you hold.

When the cancellation relates to a debt you have in your business, or that is guaranteed by business property, you would report the cancellation as business income on Schedule C or C-EZ, or on Schedule F if you have a farming business. Cancellations of personal debts are reported on the other income line on Form 1040.

Distributions from a Coverdell Education Savings Account or from a Qualified Tuition Program (529 Plan)

The portion of distributions from a Coverdell account or a 529 Plan that represent a return of the amounts contributed to the account or plan are not included in taxable income since they represent a return of your investment in the account or plan. And the gains that are distributed are not taxable to the beneficiary if they are used to pay qualified education expenses. But the portion of a distribution that does not represent a return of your investment, and that is not used to pay qualified education expenses is taxable. And, if part of the distribution is taxable, there is an additional tax that applies.

Distributions from a Health Savings Account or an Archer Medical Savings Account