The government canceled your student loan. A lawyer helped negotiate a lower balance on your debt obligation. You received a generous settlement at the conclusion of a lawsuit. You paid low insurance premiums through the Health Insurance Marketplace.
Good news, right? Maybe. Maybe not. Stay tuned. What was a pleasant surprise may come with an unpleasant surprise at tax time.
Bartering
Bartering is a time honored practice that is finding new life in turbulent economic times. Whether it’s goods or services, and whether it’s through craigslist, swap meets, word of mouth, or an organized barter exchange, bartering can save money and connect you to your community.Not suprisingly, the IRS wants to be part of that community too. If you trade goods or services instead of paying cash, the value of what you receive is considered taxable income.
The IRS does not consider informal bartering for noncommercial purposes, like babysitting cooperatives, as taxable.
However, if you barter services—for instance, car repair for CPA services—the fair market value of those services is taxable. The same applies if you exchange goods: eggs for produce, for example.
Found Money
If you stumble upon money, like discovering cash in an old couch you bought on craigslist, the IRS considers it taxable.Found property is considered taxable income too. For instance, if you found a gold bracelet, you'd owe taxes on the fair market value—the reasonable expected price of the item in its current condition—of the bracelet at the time you found it.
If you eventually sold that gold bracelet, however, you would only be taxed on whatever profit you make, not on the entire value of the bracelet, because you claimed that when you initially paid taxes on the find.
Illegal Activities
Income from illegal activities, such as theft or drug sales, must be reported to the IRS. Really?Gambling Winnings, Prizes, and Awards
Whether it’s a lottery win or a lucky night at the casino, gambling winnings are taxable, regardless of the amount. However, if you itemize your deductions, you can claim gambling losses as a tax deduction.Forgiven Debt
In general, forgiven debts are treated as income subject to taxes. The IRS says “In general, if your debt is canceled, forgiven, or discharged for less than the amount owed, the amount of the canceled debt is taxable. If taxable, you must report the canceled debt on your tax return for the year in which the cancellation occurred.”For forgiven amounts over $600, lenders must submit IRS Form 1099-C to declare “loan forgiveness.” It includes the type of debt that was canceled, the amount of the debt, and the date that the debt was forgiven. “The taxpayer then keeps this money, so it’s considered income,” the IRS says. Therefore, the 1099-C must be reported on the tax return.
However, there are exceptions, notably, amounts that are canceled as gifts, bequests, devises, or inheritances.
However, that only applied to loans discharged between Jan. 1, 2021, and Dec. 31, 2025. After this year, unless Congress enacts new measures, discharged or forgiven student loan debt will once again be subject to federal taxes. How it’s taxed will depend on the program through which the loans were forgiven.
And, although the federal government won’t tax you on your forgiven student loans this year, your state might. As of 2025, five states—Arkansas, Indiana, North Carolina, Mississippi, and Wisconsin—tax forgiven student loan debt.
Settlements
If you received money from a lawsuit settlement, a check from your insurance company after a car accident, or a severance check from your employer, you might find yourself with a corresponding tax bill.In this category, there are so many distinctions that the subject warrants another article.
There are exceptions, however. The circumstances of your case make a difference in whether the proceeds are considered by the IRS as income—and taxed—or are exempt.
Unemployment benefits
Unemployment benefits, although they are meant to help, are taxable by the federal government.Health Insurance
Speaking of unemployment, if you had reduced health insurance premiums through the Health Insurance Marketplace because you were out of work or couldn’t get affordable insurance any other way, you could be in for a nasty surprise at tax time.If you underestimated your yearly income when applying for Marketplace insurance—perhaps because you got a job or your income increased later in the year—you may owe the federal government for a portion of those benefits.
Those reduced insurance premiums most likely came in the form of “premium tax credits.” And because the government looks at how much you made throughout the entire year to determine your eligibility for Marketplace insurance, that new job or raise—even if you little to no income for part of the year—may mean you owe the difference between the amount of premium tax credit you received and the amount you were eligible for.
You may have paid a greatly reduced premium for health insurance through a major insurer while you were out of work. But someone paid the rest of the monthly premium. And if your income goes up, that someone—the government—wants its money back.
Wrapping Up
Tax time can be a time of self-reflection, as we look back on where the money went ... and where it’s going.We might shake our heads ruefully as we realize how much the government was a part of the events that made up our tax year—jobs or lack thereof, recreation, education, even chance events.
On a pragmatic level, however, that reflection can help us plan for the year to come and make next year’s taxes less painful.
