Everything Else

Items that are neither compensation for services nor investment return, and that mostly follow their own idiosyncratic rules.

Long-Term Disability Benefits

Taxability turns entirely on who paid the premium: benefits funded by employer-paid or pre-tax premiums are taxable ordinary income, and benefits funded with your own after-tax dollars are tax-free. No FICA applies either way, and these are not earned income for IRA contribution purposes — so a long disability can leave you unable to fund a retirement account at all. That asymmetry is the whole argument for paying disability premiums with after-tax dollars (section “Disability Insurances: Covering Your Lost Income”). Reference: IRS Pub. 525.

Strike Benefits

Payments from a union strike fund are taxable ordinary income unless paid solely on the basis of need and intended as a gift. Not subject to FICA. Reference: IRS Pub. 525.

Alimony

For divorce or separation agreements executed after December 31, 2018, alimony is neither deductible by the payer nor taxable to the recipient; pre-2019 agreements remain under the old inclusion-and-deduction regime (section “Alimony After the TCJA”).

Cancellation of Debt

Forgiven debt is taxable as ordinary income under IRC §108, “Income from discharge of indebtedness” and reported on Form 1099-C, unless an exclusion applies — insolvency, Title 11 bankruptcy (section “Bankruptcy”), or qualified principal-residence indebtedness.

Gambling and Lottery Winnings

Taxable as ordinary income, reported on Form W-2G with 24% withholding above threshold payouts. Losses are deductible only if you itemize and only against winnings — and the OBBBA caps the loss deduction at 90% of losses beginning in 2026, so a break-even year can still generate taxable income.

Legal Settlements

Recoveries for physical injury or sickness are excluded under IRC §104, “Compensation for injuries or sickness”; punitive damages, interest, lost wages, and most emotional-distress awards are taxable.

The trap is the attorney’s fee. Under Commissioner v. Banks, 543 U.S. 426 (2005), the plaintiff has gross income equal to the entire recovery including the contingent fee, and since IRC §67(g) eliminated miscellaneous itemized deductions, that fee is generally not deductible. A $1 million settlement with a 40% contingency can leave you taxed on $1 million while receiving $600,000.

The critical exception: IRC §62(a)(20), “Deduction for costs involving discrimination suits” and §62(a)(21) allow an above-the-line deduction for attorney fees in unlawful-discrimination claims, certain federal whistleblower awards, and related actions. If your claim can be pleaded to fall within §62(e)’s list of covered statutes, do so deliberately — the characterization in the settlement agreement is worth more than the negotiation over the last $50,000 of the headline number.

Digital Asset Rewards

Tokens received from staking, mining, or rewards are ordinary income at fair market value on receipt, establishing basis; a later sale is a capital gain or loss. Every Form 1040 requires answering the digital-asset question.

Unemployment Compensation

Fully taxable as ordinary income and reported on Form 1099-G; no FICA applies.

Gifts and Inheritances

Not taxable income to the recipient under IRC §102, “Gifts and inheritances”. Any transfer tax falls on the giver or the estate, not the beneficiary (chapter “Estate planning”). Income subsequently earned on inherited assets is, of course, taxable.

Scholarships and Fellowships

Tax-free under IRC §117, “Qualified scholarships” to the extent used for tuition and required fees, books, and supplies; amounts spent on room, board, or travel, and any portion that is payment for teaching or research, are taxable. The dependency and reporting mechanics are in section “Scholarships, Fellowships, and Dependency”.