Ever give your friend a haircut in exchange for a free meal at her restaurant? Ever trade painting a wall for a month’s worth of dog walking? If so, you’ve generated reportable income – for both parties in the barter transaction.
The IRS says you must include the fair market value of the goods and/or services exchanged in reported income. To the IRS there is no difference if you bartered for the benefit or worked, got paid cash, and then spent it on the service. This means you’re subject to income tax and self-employment tax.
Whether you use a formal barter exchange or just trade between friend, you are supposed to declare that income. Formal bartering organizations should issue you a Form 1099-B, Proceeds from Broker and Barter Exchange Transactions to you. This information is also reported to the IRS.
For full details, check out the IRS Bartering Tax Center here.