In what tax year is income reported? Does it matter when I receive the check ? Does it matter when I earned the money?
The proper year for reporting an item of income depends on your method of accounting (cash or accrual). The vast majority of taxpayers filing Form 1040 use the cash method of accounting. Cash method taxpayers report items of income in the year in which the items are actually or constructively received. For cash method taxpayers, the year that the income is earned is irrelevant.
With respect to "actual receipt," if you receive an item of income that is paid to you by check, your receipt of that check is taxable to you as if it were cash.
With respect to "constructive receipt," constructive receipt occurs when the income is made available to you. For example, you are in constructive receipt of income paid to you by check if the check has been cut and is readily available to you, even though you have not picked it up as planned. Also, you are in constructive receipt of bank interest when it has been credited to your account, even though you have not withdraw it.
If you are filing Form 1040 (PDF), it is unlikely that you are accrual method taxpayer. Nevertherless accrual method generally report income in the year it is earned, billed, or received, whichever occurs first.
References:
Tax Topics & FAQs | 2002 Tax Year Archives | Tax Help Archives | Home
