Are you looking for a hard and fast rule about what income is taxable and what income is not taxable? The fact is that all income is taxable unless the law specifically excludes it.
Taxable income includes money you receive, such as wages and tips. Although this may surprise you, taxable income also includes Unemployment Compensation.
Taxable income can also include non-cash income from property or services. For example, both parties in a barter exchange must include the fair market value of goods or services received as income on their tax return.
Some types of income are not taxable except under certain conditions, including:
- Life insurance proceeds paid to you are usually not taxable. But if you ‘cash-in’ a life insurance policy, any amount received that is more than the cost of the policy is taxable.
- Income from a qualified scholarship is normally not taxable. This means that amounts you use for certain costs, such as tuition and required books, are not taxable.However, amounts you use for room and board are taxable.
- If you got a state or local income tax refund, the amount may be taxable. The basic rule is that the refund is taxable if you claimed an itemized deduction for taxes paid for the year that the refund relates.
The following types of income that are usually not taxable:
- Gifts and inheritances
- Child support payments
- Welfare benefits
- Damage awards for physical injury or sickness
- Cash rebates from a dealer or manufacturer for an item you buy
- Reimbursements for qualified adoption expenses
IRS Circular 230 Disclosure
Pursuant to IRS Regulations, we inform you that any tax advice provided or implied on this post (including attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties that may be imposed on the taxpayer.
While the information contained in this post is believed to be reliable, we cannot guarantee its accuracy or completeness.