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Taxable and non-taxable income
📚 What This Guide Covers
This article explains the difference between taxable and non-taxable income using common examples from the IRS.
⚠️ Before You Begin
Review your income sources and compare them to the IRS examples below.
📊 Step-by-Step Guide
Step 1: Review common items not included as taxable income
Use the IRS examples below to identify items that are often not treated as taxable income.
To help you understand the differences between taxable and non-taxable income, the Internal Revenue Service offers these common examples of items not included as taxable income:
Adoption Expense Reimbursements for qualifying expenses
Child support payments
Gifts, bequests and inheritances
Workers' compensation benefits
Meals and Lodging for the convenience of your employer
Compensatory Damages awarded for physical injury or physical sickness
Welfare Benefits
Cash Rebates from a dealer or manufacturer
Step 2: Check items that may or may not be taxable
Some income may be taxable under certain circumstances, but not taxable in others. Examples of items that may or may not be included in your taxable income are:
Life Insurance - If the taxpayer surrenders a life insurance policy for cash, the taxpayer must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds, which were paid to the taxpayer because of the insured person's death, are not taxable unless the policy was turned over to the taxpayer for a price.
Scholarship or Fellowship Grant - If the taxpayer is a candidate for a degree, the taxpayer can exclude amounts received as a qualified scholarship or fellowship. Amounts used for room and board do not qualify.
Non-Cash Income- Taxable income may be in a form other than cash. One example of this is bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties.
All other items including income such as wages, salaries, tips, and unemployment compensation are fully taxable and must be included in the taxpayer's income unless it is specifically excluded by law.
These examples are not all-inclusive. For more information, see Publication 525, Taxable and Nontaxable Income, which can be downloaded from www.irs.gov ; or requested by calling the IRS at 800-TAX-FORM (800-829-3676).
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Tags: federal,form