If you're like many people, you signed up for the PayPal class action lawsuit and got around $9 for filing a claim against the Statutory Damage Fund. My read of IRS publication 4345 says that this constitutes taxable income. Note: This is just my personal opinion. Consult with your tax advisor before taking action. As for me, I reported it. Given my previous experience with the IRS, I'm willing to fork over the $3 to avoid getting audited.