Dear Tax Talk,
Is money received from blood banks for donated blood taxable as earned income?
— Joy

Dear Joy,
Ages ago, the tax law distinguished between earned and unearned income, as there was a maximum tax rate that applied to earned income. When the preferential rate went away, the distinction became less important. However, earned income still has certain significance. For example, earned income is important in figuring the aptly named earned income credit. Without earned income there is no credit, and since this tax credit is refundable, properly classifying income becomes important.

While getting queasy in researching your question, I came across the case of Margaret Green, a 1980 Tax Court decision (74 T.C. 1229). As a rare blood type, Green donated 95 times in 1976, earning approximately $7,000. The court found it clear that the income earned was taxable without regard to the frequency of her donations. Further, the court found that due to her frequency of donations, she should be considered self-employed in the business of selling tangible property — namely blood.

Hence, the inference from the tax case is that although blood is not your normal business goods, you can still make a business out of it for tax purposes. Depending on the frequency of your donations, money received from blood banks can be considered earned income.

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.

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