Inmate Income

Today TaxMama hears from Karen in the Tax Parlor, who’s curious. “I’m seeing in my tax prep software, a reference to “inmate income”. Is income earned by inmates taxed or handled differently? Just curious.”

Hi Karen,

Inmates do have to pay tax on their income, like anyone else. But, after looking into some issues affecting inmates, there are some differences.

Toni McIntyre, an Enrolled Agent and former IRS agent in Corpus Christi, TX, tells us that income earned by inmates is not taken into account for the Earned Income Tax Credit. The same thing applies to income earned for work performed while in a work release program or while in a halfway house. http://www.irs.gov/publications/p596/ch01.html#d0e1403

Since you couldn’t use the inmate’s income to get the EIC, when it comes to figuring earned income for the Child Tax Credit limits, you don’t take the inmate’s income into account either. That’s actually a good thing, if the parent who’s not incarcerated is earning something close to the limits. See the instructions for the Additional Child Tax Credit on Form 8812
http://www.irs.gov/pub/irs-pdf/f8812.pdf

An inmate’s wages are not subject to Federal Unemployment Tax (FUTA) and I suspect the same is true in most states.

http://www.irs.gov/pub/irs-prior/i940—1997.pdf

They are also excluded from FICA/Medicare. While inmates, they don’t accrue any unemployment or retirement benefits.

There may be other differences. Perhaps some of our tax experts will weigh in.

And remember, you’ll find answers to lots of questions, even about inmates’ income issues, and other tax information, free. Where? At TaxMama.com

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