Unemployment, gambling, forgiven debt and other income
Which odds-and-ends of income are taxable, which are not, and where the new tips and overtime deductions fit. A quick read for tax years 2023 to 2026.
Prepared by Prem Tax and Accounting Corp. Last checked against official sources on October 26, 2026.
Chapter 8 of Publication 17 is the catch-all for income that fits nowhere else, such as unemployment pay, gambling, forgiven debt and side jobs, plus a list of items that are not income. The 2025 edition has it on printed pages 66 to 77; the 2023 and 2024 editions place it on pages 67 to 78. Think of this page as a friendly summary; the IRS publication has the last word.
- Money, property and services count as income unless a rule says otherwise.
- Unemployment pay, gambling winnings, jury pay, prizes and most forgiven debt are taxable.
- Child support, gifts, inheritances and most life insurance paid at death are not.
- New for 2025 to 2028: deductions for qualified tips and overtime.
- Side income counts even if nobody sends you a Form 1099.
Common taxable items
Where each one goes on Schedule 1. These lines and the rules below were the same in the 2023, 2024 and 2025 editions.
| Item | Schedule 1 line |
|---|---|
| Unemployment pay (Form 1099-G) | 7 |
| Gambling winnings (Form W-2G) | 8b |
| Forgiven personal debt (Form 1099-C) | 8c |
| Jury duty pay, prizes, hobby income | 8h, 8i, 8j |
| State tax refund, when it counts | 1 |
- Unemployment: you can ask for 10 percent withheld with Form W-4V.
- Gambling: report winnings in full. Losses help only if you itemize, and never beyond your winnings.
- Forgiven debt: Form 1099-C arrives at $600 or more. Bankruptcy and insolvency (up to the amount you were insolvent) are exclusions.
- State refund: taxable only if you deducted that tax on an earlier itemized return and it cut your tax.
Usually not income
Child support, gifts and inheritances (though income they later earn is taxable), life insurance paid at death (apart from interest), damages for physical injury or sickness, SSI and need-based welfare.
Numbers by year
| Tax year | Tips deduction up to | Overtime deduction up to | Reduced above modified AGI of | Form 1099-NEC starts at |
|---|---|---|---|---|
| 2023 | None | None | Not applicable | $600 |
| 2024 | None | None | Not applicable | $600 |
| 2025 | $25,000 | $12,500 ($25,000 joint) | $150,000 ($300,000 joint) | $600 |
| 2026 planning | $25,000 | $12,500 ($25,000 joint) | $150,000 ($300,000 joint) | $2,000 |
Both deductions need a valid Social Security number and, if married, a joint return. Qualified tips are voluntary cash or card tips in an occupation the IRS lists as customarily tipped. Overtime means only the extra half of time-and-a-half. Both deductions cut income tax only; payroll tax still applies.
For 2026, treat the numbers as planning figures (source: Rev. Proc. 2025-32 and the 2025 law), since the IRS has not issued Pub 17 (2026). For 2026, only 90 percent of gambling losses count (still capped at winnings), and W-2 box 12 uses codes TP for tips and TT for overtime.
An invented example
Dana (invented) earns $30 an hour and works 300 overtime hours in 2025, paid at $45 an hour as the federal wage law requires. Her income is under $150,000.
- Overtime pay: 300 x $45 = $13,500.
- Extra half only: 300 x $15 = $4,500. That is her deduction, under the $12,500 cap.
- The full $13,500 stays in her wages.
Mistakes people make
- Skipping side income because no Form 1099 came.
- Reporting only net gambling results instead of winnings in full.
- Assuming forgiven debt is tax free without checking the exclusions.
Quick check
You receive $9,600 of unemployment pay and asked for 10 percent withholding. What is withheld and what is taxable? (2025)
Answer: $960 is withheld ($9,600 x 10%), and all $9,600 is taxable.
You win $5,000 gambling, lose $7,000 and itemize. What do you report and deduct? (2025)
Answer: Report $5,000 of winnings. Deduct at most $5,000 of losses; the other $2,000 is not deductible.
Your 2024 joint return itemized $29,900 against a $29,200 standard deduction. In 2025 you get a $1,000 refund of the state income tax you deducted. What is taxable? (2025)
Answer: $700, the smaller of the $1,000 refund and the $700 by which itemizing beat the standard deduction ($29,900 - $29,200).
Common questions
Do I report side income with no Form 1099?
Yes, all of it. For 2025, payment apps send Form 1099-K only above $20,000 and more than 200 transactions; the 2024 edition printed $5,000 for 2024. The income counts either way.
I got a Form 1099-C for credit card debt. Is it taxable?
Usually yes, unless an exclusion fits, such as bankruptcy or insolvency. Some student loan discharges from 2021 through 2025 are also excluded.
Is alimony taxable?
Not if the agreement was signed after 2018. Older agreements follow older rules unless changed to adopt the new one.
Official sources
- IRS Publication 17 (2025), chapter 8
- IRS Publication 17 (2024), chapter 8
- IRS Publication 17 (2023), chapter 8
- IRS fact sheet FS-2025-03 on tips and overtime deductions
- IRS Publication 505 (2026)
- IRS General Instructions for Forms W-2 and W-3 (2026)
Keep reading
- Wages and Job Benefits: Pub 17 Chapter 5
- Taxable Social Security: Pub 17 Chapter 7
- Other Itemized Deductions: Pub 17 Chapter 12
- Key Tax Numbers by Year, 2023 to 2026
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