Chapter 8 of IRS Publication 17 is the catch-all of Part Two. It covers receipts that fit no other chapter (barter, canceled debt, refunds, repayments, unemployment pay, public benefits, settlements, gambling, prizes) and says whether each is taxable. In the 2025 edition it runs on printed pages 66 to 77, with chapter 9 starting at the foot of page 77; the 2023 and 2024 editions have the same chapter on pages 67 to 78. It touches Schedule 1, Schedule 1-A, Schedules C and E, and Forms 1099-C, 1099-G, 1099-K, W-2G and 8853. Neighbours: chapter 7 and chapter 9. These are unofficial study notes in our own words; the IRS publication controls.
Key terms
| Term | Meaning in one line |
|---|---|
| Fair market value | The price a willing buyer and seller would agree on |
| Insolvent | Debts exceed the value of your assets just before the debt is canceled |
| Tax benefit rule | A recovery is income only to the extent the earlier deduction lowered your tax |
| MAGI | AGI plus certain excluded foreign and territory income, used for the new deductions |
Barter and canceled debt
Barter. Report the fair market value of what you receive when you receive it; a value both sides agreed in advance is accepted unless shown wrong. Services normally go on Schedule C, and a barter exchange sends Form 1099-B. Barter-club credits are income when credited (all years).
Canceled debt. Forgiven debt is income unless it was a gift. Nonbusiness debt goes on Schedule 1, line 8c; business debt goes on Schedule C or F. A lender that cancels $600 or more sends Form 1099-C (box 2 amount, box 3 interest). Forgiven interest is left out of income only if it would have been deductible when paid (then include box 2 less box 3). See our canceled debt guide.
- A discount for early mortgage payoff is canceled debt.
- Relief from a recourse mortgage on a sale is gain or loss up to the property's value, with any excess as canceled-debt income. Nonrecourse relief raises the amount realized.
- Debt a corporation forgives for a stockholder is generally a dividend.
Exclusions. Canceled debt is not income when it is:
- Discharged in a title 11 bankruptcy.
- Canceled while you are insolvent, up to the amount of insolvency only.
- Qualified farm debt or qualified real property business debt.
- Intended as a gift.
- Qualified principal residence debt. The 2025 edition lists it, but the statute (section 108(a)(1)(E)) reaches only discharges before 2026, or under a written arrangement made before 2026.
- Debt whose payment would have been deductible (cash-method taxpayers), or a seller's price cut, which lowers basis instead.
Forgiven PPP loans are tax exempt but need a Rev. Proc. 2021-48 statement.
Student loans. Work-requirement cancellations and certain health-service repayment programs are excluded in all years. The broader American Rescue Plan exclusion covers discharges from 2021 through 2025. 2026 planning rule, Pub 17 (2026) not yet published: for discharges after 2025 the broader exclusion shrinks to discharges because of death or total and permanent disability, and an SSN is required. The work-requirement and health-service rules above are separate and continue.
Recoveries and repayments
A recovery is money back for something deducted earlier. Federal income tax refunds are never income. A state or local income tax refund (Form 1099-G, generally sent by January 31) is income if you itemized that tax; it goes on Schedule 1, line 1, and other recoveries go on line 8z. A recovery in the same year as the expense just reduces the deduction.
Include the smaller of the recovery or the deduction you took. When the earlier year's deductions did not exceed your income, also cap the amount at how far itemized deductions exceeded that year's standard deduction.
A repayment of income reported earlier depends on size:
- $3,000 or less: no deduction, because miscellaneous itemized deductions are gone (business and for-profit repayments follow the original schedule).
- More than $3,000 in total: figure the tax both ways, deducting on Schedule A, line 16, or taking a credit equal to the earlier-year tax drop on Schedule 3, line 13b. Use the lower-tax method.
Repaid Social Security benefits follow chapter 7.
Business-type receipts
- Partnerships and S corporations pass income through on Schedule K-1; keep it, and attach it only if told to.
- Royalties usually go on Schedule E, Part I; use Schedule C for an operating mineral interest or a self-employed writer or artist. The 2024 edition added student-athlete name, image and likeness payments.
- Renting personal property: Schedule C if a business; Schedule 1, line 8l (expenses on line 24b) if for profit but not a business.
- Fees for services (director, executor, notary) are income. Form 1099-NEC is required at $600 through 2025 and $2,000 for payments after 2025 (2026 planning figure; Pub 17 (2026) not yet published).
- Gig and sharing income is reported whether or not a Form 1099-K arrives.
Unemployment and public benefits
Unemployment compensation (state, railroad, trade readjustment and disaster programs) is fully taxable on Schedule 1, line 7, as Form 1099-G shows. You may choose 10% withholding on Form W-4V. Employer-funded supplemental unemployment benefits are wages.
Not income: needs-based welfare unless paid for services, qualified disaster relief, Medicare benefits, SSI and the Social Security lump-sum death benefit.
Insurance, injury awards and gambling
Life insurance paid because of a death is not income, but interest on it is; surrender proceeds above your cost are. Accelerated death benefits are tax free for a terminally ill insured; for a chronically ill insured, periodic payments are tax free up to the per-day limit in the by-year table (Form 8853).
Damages for physical injury or sickness are excluded; interest, lost wages and (usually) punitive damages are income.
Gambling winnings, including fantasy sports and noncash prizes at fair market value, go on Schedule 1, line 8b; Form W-2G withholding goes on Form 1040, line 25c. Never net losses against winnings: losses are an itemized deduction only. Other prizes go on line 8i.
Quick table of small items
| Item | Taxable? | Where |
|---|---|---|
| Alimony, instruments after 2018 | No | Not reported (pre-2019 orders: line 2a) |
| Child support; gifts and inheritances | No | Not reported |
| Alaska Permanent Fund dividend | Yes | Line 8g |
| Jury duty pay | Yes | Line 8h (pay passed to employer: line 24a) |
| Hobby income | Yes; no loss allowed, and hobby costs were miscellaneous itemized deductions, which are now barred | Line 8j |
| Kickbacks (and bribes, found property) | Yes | Kickbacks: line 8z, or Schedule C if self-employed |
Tips and overtime deductions (2025 to 2028)
Both are deductions below AGI, open to people who do not itemize, claimed on Schedule 1-A. See our new deductions guide.
- Tips: voluntary cash tips (card tips and tip pools count) in an occupation on the IRS list that customarily received tips before 2025, outside a specified service business. The cap is $25,000 per return, not doubled when joint. Self-employed tips cannot exceed that business's net profit.
- Overtime: only the premium half of overtime that federal wage law requires, never tips. The cap is $12,500 ($25,000 joint).
- Phase-down: cut the capped amount by $100 for each full $1,000 of MAGI above $150,000 ($300,000 joint).
- Conditions: a valid SSN, and married people must file jointly. These are income tax deductions; Social Security and Medicare tax are unchanged.
2026 planning rule, Pub 17 (2026) not yet published: the draft 2026 Schedule 1-A keeps the same caps and thresholds and adds W-2 box 12 codes TP and TT. Both deductions end after tax year 2028.
Form 1099-K by year
Form 1099-K reports card and payment-app receipts. In every year the income counts whether or not a form comes, and only the issuer can correct a wrong form. Business receipts go on Schedule C, capital asset gains on Form 8949 and Schedule D, and depreciable business property on Form 4797; a personal item sold at a loss is not deductible. See also our 1099-K threshold answer.
By tax year: 2023, 2024, 2025 and 2026
| Item | 2023 | 2024 | 2025 | 2026 (planning) |
|---|---|---|---|---|
| 1099-K test for apps and marketplaces | Over $20,000 and over 200 transactions | Pub 17 printed over $5,000 (planned phase-in); later law restored $20,000 and 200 | Over $20,000 and over 200 transactions | Same as 2025 |
| 1099-K error or personal loss | Lines 8z and 24z | Entry space on Schedule 1 (chapter text still cites 8z and 24z) | Entry space on Schedule 1 | Entry space (draft) |
| Form 1099-NEC threshold | $600 | $600 | $600 | $2,000 |
| Tips deduction | None | None | Up to $25,000 | Up to $25,000 |
| Overtime deduction | None | None | $12,500 ($25,000 joint) | Same |
| Chronic-illness per-day limit | $420 | $410 | $420 | $430 |
| Broader student loan discharge exclusion | Yes | Yes | Yes | Death or disability only |
| Gambling losses | Up to winnings | Up to winnings | Up to winnings | 90% of losses, up to gains |
2026 column: planning figures from Rev. Proc. 2025-32 and the 2025 law; Pub 17 (2026) is not yet published.
Text changes between editions:
- Removed in 2025: the Home Affordable Modification Program note (success payments not taxable).
- 2024 on: name, image and likeness royalties.
- 2025 on: tips and overtime; the full 2024 Alaska dividend ($1,702) is taxable.
Worked examples
Example 1 (tax year 2025, overtime). Dev and Mira file jointly with MAGI of $312,000. Dev earns $30 an hour, or $45 for overtime, and worked 500 overtime hours. Qualified overtime is the premium only: 500 x $15 = $7,500, under the $25,000 cap. MAGI is $12,000 over $300,000, so 12 x $100 = $1,200 comes off. Deduction: $7,500 - $1,200 = $6,300.
Example 2 (tax year 2025, tips). Nia, single, earned $31,000 of qualified tips; MAGI is $152,500. The cap gives $25,000. The excess over $150,000 is $2,500, which is 2 whole thousands (the form rounds down), so $200 comes off. Deduction: $24,800.
Example 3 (tax year 2025, recovery). Sam, single, itemized $18,000 on his 2024 return; the 2024 standard deduction was $14,600, a $3,400 gap. In 2025 he receives a $4,000 refund of state income tax that he fully deducted (his state and local taxes were under the 2024 $10,000 cap). Include the smaller of $4,000 and $3,400: $3,400 on Schedule 1, line 1.
Common mistakes and exam traps
- Netting gambling losses against winnings instead of reporting winnings and deducting losses on Schedule A.
- Deducting all overtime pay instead of the premium half, or claiming tips or overtime on a married-filing-separately return.
- Treating a 1099-K as the final income figure, or applying the old $5,000, $2,500 and $600 schedule.
- Excluding canceled debt without proving insolvency, or forgetting the exclusion cannot exceed the insolvency amount.
- Expecting a deduction for a repayment of $3,000 or less.
- Counting post-2018 alimony or child support as income.
Forms and lines map
| Form and line (2025 forms) | What goes there |
|---|---|
| Schedule 1, entry space at top | 1099-K amounts included in error or for personal items sold at a loss |
| Schedule 1, lines 1, 7, 8b, 8c | State refunds, unemployment, gambling, canceled debt |
| Schedule 1, lines 8g to 8j, 8l, 8z; 24a, 24b | Alaska dividend, jury pay, prizes, hobby income, personal property rent, other; matching adjustments |
| Schedule 3, line 13b | Credit for repaying income over $3,000 |
| Schedule 1-A, lines 13, 21 and 38; Form 1040, line 13b | Tips deduction, overtime deduction, their total, and where the total lands |
| Form 1040, line 25c | Withholding from Form W-2G |
| Forms 1099-C, 1099-G, W-2G, 8853, 982 | Cancellation, refunds and unemployment, gambling, per-day limit, debt exclusions |
The 2026 drafts keep these Schedule 1 and 3 lines but move the Schedule 1-A total to Form 1040, line 13a (Schedule 1-A, line 44).
Check yourself
Is a federal income tax refund taxable? (any year)
Answer: No. Federal income tax is never deductible, so its refund is not a recovery.
A lender cancels $9,000 of debt while you are insolvent by $6,000. How much is income? (2025)
Answer: $3,000. The exclusion is capped at the $6,000 of insolvency.
Overtime pay is $60 an hour at time and a half. How much per hour is qualified? (2025)
Answer: $20. The regular rate is $40, and only the extra half qualifies.
Where are gambling winnings reported, and who deducts losses? (2024)
Answer: Schedule 1, line 8b; only itemizers, limited to winnings.
What Form 1099-K threshold does Pub 17 (2025) state? (2025)
Answer: Over $20,000 and over 200 transactions.
You repay $2,800 of last year's wages. Deduction? (2025)
Answer: No. Repayments of $3,000 or less are no longer deductible.
A joint return has MAGI of $330,000 and $10,000 of qualified overtime. What is the deduction? (2025)
Answer: $7,000. The $30,000 excess removes 30 x $100 = $3,000.
Does a joint return double the $25,000 tips cap? (2025)
Answer: No. Only the overtime cap doubles, to $25,000.
Frequently asked questions
Do I owe tax on income if I never get a 1099?
Yes. Income is taxable whether or not a form arrives, unless a rule excludes it.
Can I claim the tips and overtime deductions if I take the standard deduction?
Yes. They are below-the-line deductions for non-itemizers, claimed on Schedule 1-A for 2025 to 2028.
Is forgiven credit card debt always taxable?
No. Bankruptcy, insolvency and other exclusions can apply despite a Form 1099-C.
A CPA can review your return and the forms behind it, and explain how these rules apply to your situation.
Official sources
- IRS Publication 17 (2025), chapter 8
- IRS Publication 17 (2024), chapter 8
- IRS Publication 17 (2023), chapter 8
- Public Law 119-21 (2025 tax law), sections 70114, 70119, 70201, 70202, 70432, 70433
- IRS Rev. Proc. 2025-32 (2026 adjustments), section 4.62
- IRS Schedule 1-A (Form 1040), 2025
- IRS fact sheet FS-2023-27 on the 2023 and 2024 Form 1099-K thresholds
This page is a plain-language summary. The official source controls if there is any difference.
General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.