No retro taxes, I believe. The income is taxable in the year you receive it, so one lump this year is this year's earnings, even if it did accrue over a longer time.

{quote]If it's not too much money do I have to report it at all? {/quote] Google is reporting it, the IRS will know, its very possible they will be looking for you to report it. You do not want the hassle, in my opinion, to risk not reporting it.

The good news is that you'll have what ever is left after taxes, so enjoy the $$.

Technically, its earnings from a business, which requires you to file a Schedule C or some other business income form. If this is your only business earnings, and its kind of small, there might be simpler ways to report it as misc. income... I'd look to others here for an opinion on that.

I understand nobody here is a tax expert per se

Actually, I am an Enrolled Agent [naea.org], although not practicing any more (coding is more fun :) ).

If it's over $600, Google is required to report it to the IRS, so you'll have to claim it.

You report the income when it was actually received (unless you're an accrual-based tax payer, which is doubtful). So unless you actually get the money from Google when they (supposedly) pay next week, you won't have to worry about it until you file your 2009 tax return.

Yeah, I guess it's too bad you let it all pile up. If you had taken it in dribs and drabs (under $600 a year) Google wouldn't have reported any of it. Then you could have cheated the IRS by not reporting it yourself and they'd almost certainly not catch you unless they were performing a total compliance audit (EXCEEEDINGLY RARE) on you.

Of course I would never recommend such a course of tax fraud. You should pay your taxes in full just like everyone else.

LifeinAsia is almost correct; if you get the money in 2009 (and it's more than the aforementioned $600) you'll have to include it on a form Schedule C in your 2009 return filed in early 2010. However you may "have to worry about it" before then if you want to avoid paying penalties on underpayment of estimated taxes. Make sure that you have plenty of monies withheld from W2 forms of income if any, or make an estimated payment. Instructions for estimating you tax liability and making those estimated payments can likely be found in Publication 17.

It's also too bad that you didn't take the monies as you earned them even if you were over the $600 threshhold, as you can only take deductions for expenses paid within the tax year you can't accrue them from previous years, so you can't deduct say, your hosting fees for the previous 4 years, unless you want to go back and file amended returns for each year and claim phantom income, and send along a note with the 2009 return explaining why your 1099 income for 2009 doesn't match the amount claimed... if that's even possible.

(Don't forget that every dollar of profit from your schedule C is subject not only to income taxes, but you'll also be responsible for paying the "Self Employment Tax" of 15.3%. so if you are in the lowest 10% bracket, you'll be forking over about 25% of your profit in taxes. (In actuality a trifle less as 1/2 of that tax is taken as an adjustment to your income. Don't forget your Schedule SE!).

Of course if you are uber wealthy and happen to be taxed on more than $65,000 in income, you'll be paying 40% combined taxes on that AdSense income.

If you're Bill Gates (would he use AdSense?.... hmmm, let's change that to Bill O'Reilly) and earn more than $350,000 you'll be paying 50%. Of course in our next administration, the plan was to increase taxes on those earning more than $250,000 (that was a huge difference between the candidates, right?) but of course they've cancelled that (saying that McCain was right all along about not raising taxes) now that the class warfare card worked for them.

Good luck!

On second thought I take that back. Over $100,000 (give or take) the self employment tax goes down to 2.9% plus about $12,500.

There are many reasons to claim your income is hobby income. It's critical that line 21 (Other Income) indicate "Hobby Income" if the income you've received is not a significant portion of your personal earnings, even retirement income. Your TAX PROGRAM is not likely to do this properly! Use manual overrides, print and file your return through the mail!

Read the requirements for deciding whether you are a "business" or not, very carefully.

I survived a very aggressive "mail" audit, first by being "very polite", this is critical in communicating with the IRS.

First there was an issue with stock options, I filed per the instructions, but you really can't follow the instructions or you will be audited. Why was this important? Because the IRS accepted my arguments as to why there was no tax due on this option exercise, BUT, they said okay, but, what about this other income? My website income. I had declared it all, but as hobby income (I didn't mark the 1040 correctly because my tax program still doesn't understand hobby income!)

Uncle Sam actually makes more money this way, BUT, as hobby income there is no Social Security withholding and this is what the IRS NOW challenged me with. It was as if they messed up the first audit, so now they were going to nit pick my return until I paid some money. Sort of double jeopardy.

But again I went through all the requirements to call yourself a "business". One of the biggee's is; Is this income a significant portion of your livelihood? This is a critical point. There were several other points that were important. Remember; the IRS will force you to declare your income a "hobby income" after 3 years without a profit. So in many cases people take "Schedule C" expense deductions only to be audited, for not making a profit! So you can be darned if you do and darned if you don't!

In writing back to the IRS the second time, explaining, per the instructions, why this was a hobby and not a business, and that I have other sources of income that support me, the IRS investigator acquiesced! This took months!

So after two "go rounds" on one tax return, the IRS gave in and said I did everything properly with extremely minor corrections to my return! (Always, always, throw the dog a bone!) There were two corrections I made on my return, ONE was "clearly stating" that this income from Adsense (and some other sources) was HOBBY INCOME. The other was what triggered the audit, and in my opinion, this was caused by a stock broker incorrectly filing a 1099 on a stock option exercise. I won't go into further details on this.

I was thrilled to have survived a "double" "mail" audit by the IRS. I didn't have to hire anybody, I just read the forms and explained why my filing was fundamentally correct (politely)! It was very unnerving, but it's important to ensure everybody abides by the law! Even the IRS auditors!

So as long as the income is a small chunk of change, it's completely reasonable to call it hobby income! If the intent of your website is mainly to have fun and give to others, and pay the sites expenses, consider "Hobby Income". Watch the tax programs, and do not electronically file your return. Use the programs, BUT, use the manual overrides to make the return accurate!

Of course you cannot deduct any expenses, But, expenses can be pretty low on a website. Eventually you may make enough that you should file Schedule C, AND, pay the 14% Social Security tax. BUT, you have to be a TRUE business, and make a profit.

So think about it. You have to be willing to go through an audit, defend yourself using the law, AND BE LEGALLY CORRECT (right)!

Disclaimer: I'm not a tax adviser, lawyer, etc. I'm a citizen obeying the law; my arguments are clearly approved by the IRS auditors in writing! So read all those instructions very carefully, follow them and file a proper return!

Of course you cannot deduct any expenses

You CAN deduct expenses (subject to limitations) to offset your hobby income. The main difference is that you can not create a loss by deducting more hobby expenses than hobby income.

Simplest solution is to hire an accountant to provide you with advice. That way when you deduct the accountant fee - you'll end up making no profit and owing no taxes :) That is what I do each year.

Now see? There's an approach I never considered.... Hobby income!

My wife works, I have a hobby. I like that!

I need a new accountant.

So as long as the income is a small chunk of change, it's completely reasonable to call it hobby income!

So what do you consider a small chunk of change?
Less than $5,000, less than $10,000, less than $20,000.

Business or Hobby? Answer Has Tax Implications [irs.gov]

Straight from the IRS website (talk about ugly URL's...)

An activity is presumed carried on for profit if it makes a profit in at least three of the last five tax years, including the current year...

So what do you consider a small chunk of change?
Less than $5,000, less than $10,000, less than $20,000.

To answer this question I'll quote the content pointed to by the post of "dcheney". (Talk about taking a quote out of context) Please do read the entire set of instructions, then dig into US law as well!
Business or Hobby? Answer Has Tax Implications [pubcon.com]

"Do you depend on income from the activity?"

Above is a very explicit answer to the "small chunk of change" question right in the instructions. And question 2 is a very important question to answer truthfully.

I've spent a lot of time reading my tax instructions.

1. "Does the time and effort put into the activity indicate an intention to make a profit?"
   
2. "Do you depend on income from the activity?"
   
3. "If there are losses, are they due to circumstances beyond your control or did they occur in he start-up phase of the business?"
   
4. "Have you changed methods of operation to improve profitability."
   
5. "Do you have the knowledge needed to carry on the activity as a successful business?"
   
6. "Have you made a profit in similar activities in the past?"
   
7. "Does the activity make a profit in some years?"
   
8. "Do you expect to make a profit in the future from the appreciation of assets used in the activity?"
   

"Presumed" simply means you haven't even taken the time to consider and answer the questions above. Yes the IRS will "presume" your are a business, and if you file as a business and lose money for three years they will insist you are a HOBBY!

Item 5 and 1 are key to answering the question, Business or Not?
If you are truly serious about running a business, you will keep all your receipts, you will have an accountant, a tax adviser, and even an auditor, to make sure your accountant is accurate. You will keep track of your depreciation. You probably have a "real office" to work out of as well. You should go to seminars, have on going training expenses, etc.
BUT if you are this serious about your business, will you actually make a profit? If your income from Adsense is not very high, probably not! All these legitimate expenses for a "serious" business would make the business not profitable! A hobby can produce income, legitimately!

In my case I claimed no expenses at all! Does that sound like I know how to run a business? I just declared all the income, as other income! (You do have to declare the income!)

(I could have claimed expenses, even as a hobby, as mentioned in an earlier post) You can see I'm not serious about this endeavor, "as a business"; I do it to help people, keep busy, stay mentally healthy, (hey it's a health care deduction!)

Again, I was audited for other reasons, but then the IRS nit picked the return questioning the hobby status. In the response to the IRS, each of the items 1 through 8 above were considered and truthfully answered. The IRS auditor approved the return, with the one correction, line 21 was properly, and manually, marked as "Hobby Income". Without this you will be "presumed" to be a business, hence the re-audit, audit! Maybe I got lucky, I doubt it though.

Disclaimer: I'm not a tax adviser! Use the information about my tax situation at your own risk!

wow thanks for the replies

i will look into hobby income as really it is a very very tiny portion of my overall income - but if i cash my adsense in in 2009 and it's over a few thousand let's say, can i still call it 'hobby'?

it will still be a tiny percentage of my 2009 expected earnings from 'brick and mortar' jobs!

it is highly doubtful that the site will make anything close to the brick and mortar jobs but... if it were to make more money, when does it cross the line from 'hobby' to 'business'?

thanks again, everyone, this has been a great help

The income is taxable in the year you receive it

Depends on your accounting method (Cash or Accrual):

If you use Accrual, then your expenses/taxes are based on when the money was earned, not received.

This might help from google website [google.com]
We will not send you any forms or report your earnings to the IRS if:

* You have signed the declaration of No US Activities OR
* You have NO earnings from the AdSense program OR
* You have submitted a Form W-9 as a corporation and did not have any taxes withheld OR
* You have submitted a Form W-9, made less than $600 and did not have any taxes withheld

For those publishers whose earnings are reported, please note that payments dated in 2008 will be reported in 2008. This means that unpaid earnings from 2008 that are rolled over to 2009 will not be included. For example, December earnings which are paid in January will not be included as earnings for 2008.