Retirement tax questions

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@anyaniz wrote:

To clarify from all the information listed, if my compensation for an egg donation cycle is $12,000 or less I shouldn’t have to pay any taxes on it or report it (unless I am sent the 1099 from the agency I completed the egg donor cycle through)? If so, is the $12,000 for each individual income source or combined? For instance if someone makes a salary of 50k per year and completes two separate egg donor cycles within a year (each cycle being compensated at 12k or less), would that individual need to report those two separate cycles to the IRS and would the individual need to pay regular tax on both payments? Thanks in advance! I’m considering donating and would like to know 

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You are required to report and pay income tax on all your income, regardless of any paperwork you do or don't get.  The income tax system is largely on the honor system, you are supposed to report all your income.  Paperwork like 1099s makes it easier for the IRS to catch cheaters, but not getting a 1099 does not, by itself, mean the income is not taxable.   If you have no other income, the first $12,550 of income is not taxed, due to the standard deduction.  But if you file a tax return for any reason, you must list all your income.  The $12,550 threshold applies to all your combined income, not separately to each item of income.  

You file one tax return for the entire year that reports all your taxable income from all sources.  If you are compensated for two separate donor cycles during the year, you report that on your year-end tax return with any other income.  Income is taxed when you are actually paid.  For example, if you undergo treatments in December 2022 but you are paid in January 2023, it is 2023 income.  

Compensation for egg donation is definitely taxable income.  A separate question is whether it is "work" ("earned income").  Earned income is income earned from working or providing a service with a profit motive, and earned income is subject to certain additional taxes, but allows for certain additional benefits (like contributing to an IRA or 401k, or deducting certain expenses).  In most cases, income from egg donation is not earned income.  It is considered "other" or "miscellaneous" income and is not subject to additional taxes on earned income, but you can't deduct expenses or use the income as qualifying income for IRA contributions.  

The tax system is supposed to be pay-as-you go.  If you owe a large amount of tax at the end of the year, you can owe a penalty for underpaying during the year even if you catch up and pay in full when you file your return.  If you receive a lump sum of income during the year, you will usually need to make an estimated income tax payment to the IRS.  The estimate should usually be between 15% and 25% of the lump sum income, and there are various web sites and calculators that will help you figure out what your estimated payment should be.  Your actual tax is calculated on your tax return at the end of the year.  If you overpay your estimate, you get the difference back as part of your tax refund.  If you under-pay your estimate, you may owe additional tax when you file.  Estimated taxes are due on the following schedule

You may also be required to make an estimated state income tax payment to your state.  State tax rates vary widely so you would need to check your specific state to get your estimate.