IRS Publication 17 — Your Federal Income Tax (Individuals)

5.

Wages, Salaries, and Other Earnings What’s New Deferred compensation contribution limit increased. If you participate in a 401(k) plan, 403(b) plan, or the federal government’s Thrift Savings Plan, the total annual amount you can contribute for 2025 is increased to:

• $23,500,

• $31,000 if age 50 or older, or

• $37,750 if age 60 through 63 at the end of 2025.

This also applies to most section 457 plans. Health flexible spending arrangements (health FSAs) under cafeteria plans. For tax years beginning in 2025, the dollar limitation under section 125(i) on voluntary employee salary reductions for contributions to health FSAs is $3,300.

Introduction This chapter discusses compensation received for services as an employee, such as wages, salaries, and fringe benefits. The following topics are included.

• Bonuses and awards.

• Special rules for certain employees.

• Sickness and injury benefits.

The chapter explains what income is included and isn’t included in the employee’s gross income.

Useful Items You may want to see: Publication 463 Travel, Gift, and Car Expenses 502 Medical and Dental Expenses 524 Credit for the Elderly or the Disabled 525 Taxable and Nontaxable Income 526 Charitable Contributions 550 Investment Income and Expenses 554 Tax Guide for Seniors 575 Pension and Annuity Income 907 Tax Highlights for Persons With Disabilities 926 Household Employer’s Tax Guide 463 502 524 525 526 550 554 575 907 926 3920 Tax Relief for Victims of Terrorist Attacks For these and other useful items, go to IRS.gov/ Forms.

Employee Compensation This section discusses various types of employee compensation, including fringe benefits, retirement plan contributions, stock options, and restricted property.

Form W -2. If you’re an employee, you should receive a Form W -2 from your employer showing the pay you received for your services. Include your pay on Form 1040 or 1040 -SR, line 1a, even if you don’t receive a Form W-2. In some instances, your employer isn’t required to give you a Form W -2. Your employer isn’t required to give you a Form W -2 if you perform household work in your employer’s home for less than $2,800 in cash wages during the calendar year and you have no federal income taxes withheld from your wages. Household work is work done in or around an employer’s home. Some examples of workers who do household work are:

• Babysitters,

• Butlers,

• Caretakers,

• Cooks,

• Domestic workers,

• Drivers,

• Health aides,

• Housecleaning workers,

• Housekeepers,

• Maids,

• Nannies,

• Private nurses, and

• Yard workers.

See Schedule H (Form 1040), Household Employment Taxes, and its instructions, and Pub. 926 for more information.

If you performed services, other than as an independent contractor, and your employer didn’t withhold social security and Medicare taxes from your pay, you must file Form 8919, Uncollected Social Security and Medicare Tax on Wages, with your Form 1040 or 1040 -SR. See Form 8919 and its instructions for more information on how to figure unreported wages and taxes and how to include them on your income tax return. Childcare providers. If you provide childcare, either in the child’s home or in your home or other place of business, the pay you receive must be included in your income. If you aren’t an employee, you’re probably self -employed and must include payments for your services on Schedule C (Form 1040), Profit or Loss From Business. You generally aren’t an employee unless you’re subject to the will and control of the person who employs you as to what you’re to do and how you’re to do it. 3920 Babysitting. If you’re paid to babysit, even for relatives or neighborhood children, whether on a regular basis or only periodically, the rules for childcare providers apply to you.

Self-employment tax. Whether you’re an employee or self -employed person, your income could be subject to self -employment tax. See the instructions for Schedules Cand SE (Form 1040) if you’re self -employed. Also, see Pub. 926 for more information.

Miscellaneous Compensation This section discusses different types of employee compensation. Advance commissions and other earnings.

If you receive advance commissions or other amounts for services to be performed in the future and you’re a cash -method taxpayer, you must include these amounts in your income in the year you receive them.

If you repay unearned commissions or other amounts in the same year you receive them, reduce the amount included in your income by the repayment. If you repay them in a later tax year, you can deduct the repayment as an itemized deduction on your Schedule A (Form 1040), line 16, or you may be able to take a credit for that year. See Repayments in chapter 8.

Allowances and reimbursements. If you receive travel, transportation, or other business expense allowances or reimbursements from your employer, see Pub. 463, Travel, Gift, and Car Expenses. If you’re a member of the military and you’re reimbursed for moving expenses, see Pub. 521, Moving Expenses.

Back pay awards. If you receive an amount in payment of a settlement or judgment for back pay, you must include the amount of the payment in your income. This includes payments made to you for damages, unpaid life insurance premiums, and unpaid health insurance premiums. They should be reported to you by your employer on Form W-2.

Bonuses and awards. If you receive a bonus or award (cash, goods, services, etc.) from your employer, you must include its value in your income. However, if your employer merely promises to pay you a bonus or award at some future time, it isn’t taxable until you receive it or it’s made available to you.

Employee achievement award. If you receive tangible personal property (other than cash, a gift certificate, or an equivalent item) as an award for length of service or safety achievement, you can generally exclude its value from your income. The amount you can exclude is limited to your employer’s cost and can’t be more than $1,600 for qualified plan awards or $400 for nonqualified plan awards for all such awards you receive during the year. Your employer can tell you whether your award is a qualified plan award. Your employer must make the award as part of a meaningful presentation, under conditions and circumstances that don’t create a significant likelihood of it being disguised pay. Publication 17 (2025) Chapter 5 Wages, Salaries, and Other Earnings 47