J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

2.3 Pay Received in Property Is Taxed

Your employer may pay you with property instead of cash. You report the fair market value of the property as wages.

EXAMPLE

For consulting services rendered, Kate Chong receives a check for $10,000 and property with a fair market value of $5,000. She reports $15,000 as wages.

If you receive your unrestricted company stock as payment for your services, you include the value of the stock as pay in the year you receive it. However, if the stock is nontransferable or subject to substantial risk of forfeiture, you do not have to include its value as pay until the restrictions no longer apply (2.18). You must report dividends on the restricted stock in the year you receive the income.

If you receive your employer’s note that has a fair market value, you are taxed on the value of the note less what it would cost you to discount it. If the note bears interest, report the full face value. But do not report income if the note has no fair market value. Report income on the note only when payments are made on it.

A debt cancelled by an employer is taxable income.

Salespeople employed by a dealer have taxable income on receipt of “prize points” redeemable for merchandise from a distributor.