Can law enforcement rewards for tips or capture of an individual, such as the “Beltway Sniper” be taxed? I just thought about that tonight, and i was curious. My initial thoughts are no, because it is coming straight from the gov’t, so to speak. But at the same time, it is income, so I was confuzzled…
I would say no. The money would be considered a gift and there are no taxes on gifts. Also taxing the money would create a paper trail that would link a person to a tip. This could be dangerous for the person giving the tip.
IANATL, but:
I’d call it earned income - which is taxable.
you’d get a form 1099 from the police (which means the IRS/state tax folks would know about it).
it would not specify why you were paid, just that you were paid.
IANATL either, but sure it’s taxable – it is income. it doesn’t always come from the federal gov’t either… such rewards can come from local police or from private organizations. A reward that you pay taxes on is still better than no reward at all.
People who work for the federal government pay taxes on their earnings… which of course come directly from the government. Just b/c the gov’t gives you money and at the same time collects taxes doesn’t even create a presumption that the money they give you is tax exempt.