I just heard an interesting podcast explaining how Crimestopper programs work. Apparently, when it’s time to pay the reward a time and place is set with the anonymous tipster an he or she is paid with an envelope of cash.
Are the tipsters required to pay taxes on this payout? I did a quick Google search but I couldn’t find the answer.
Yes. #61"(a)* General definition Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:"*
So unless there’s a section saying it’s NOT taxable, then it is.
Of course, if Crimstoppers, etc doesn’t record the pay-out, then who knows you got it?
Certainly you could report it anonymously as “other income”, to protect yourself.
You *could *argue that if they didnt advert the reward, and you did something without asking for or expecting a reward, it *could *be considered a non-taxable “gift”.
I’m sure the tax laws aren’t harmonized.
The IRS itself pays rewards to people who tip them off about tax cheats, and they consider that to be taxable income.
That would probably be the answer then. On the other hand I don’t think CS keeps records of payouts.
I agree that the reward money is taxable and I would have thought that if the reward was over $600 they would have had to issue a 1099-MISC and therefore would need to identify the recipient.
But much to my surprise, there is a regulation, 26 CFR 1.6041-3:
So, it appears that informants are required to pay tax, but they are on their honor to do so. I guess they do have to fear that some other informant may turn them in for not paying their taxes.