A substantial fraction of organic carbon (OC) entering lakes is remineralized to CO2 and the more potent greenhouse gas CH4, partially offsetting carbon sink benefits. Source-specific differences in OC composition and reactivity govern degradation pathways and thus regulate carbon sink benefits, yet remain poorly understood. Here, we investigated terrestrial, algal, and macrophyte OC inputs to Lake Taihu, China, from 2001 to 2020, and quantified their decomposition dynamics in the water and sediments, together with whole-lake net changes in carbon budgets expressed as CO2-equivalents (CO2-eq). The results demonstrated that OC inputs increased markedly over the study period, dominated by algal sources (6.9 × 105 tons), followed by terrestrial (6.7 × 104 tons) and macrophyte OC (2.0 × 104 tons). Algal OC exhibits the highest carbon sink benefit: despite low burial efficiency, its labile nature promotes aerobic mineralization (~94%) in the oxygenated water, thereby suppressing CH4 production. In contrast, terrestrial and macrophyte OC, enriched in recalcitrant macromolecules, preferentially settle and decompose in anaerobic sediments (~45% ; 63%), promoting CH4 production. In Lake Taihu, eutrophication-driven increases in algal OC inputs have progressively enhanced carbon sink benefits, with annual CO2-eq mitigation rising from 1.6 × 105 tons in 2001 to 2.8 × 105 tons in 2020. OC source governs decomposition pathways and thereby lake carbon sink benefits, while eutrophication-driven algal carbon enhances these benefits by suppressing CH4 emissions, informing lake carbon management.