Tax Talk: Taxable vs. Nontaxable Income

By Brendan Hughes0 Comments

Are you looking for a hard and fast rule about what income is taxable and what income is not taxable? The fact is that most income is taxable unless it is specifically excluded by law.

Taxable income includes money you receive, such as wages and tips. It 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. However, if you redeem a life insurance policy for cash, any amount 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 received a state or local income tax refund, the amount may be taxable. You should receive Form 1099-G from the agency that made the payment to you. If you did not receive it by mail, the agency may have provided the form electronically. Contact the individual agency to find out how to obtain a duplicate form. Report any taxable refund you collect even if you did not receive Form 1099-G.
The following types of income are usually not taxable:
  • Gifts and inheritances
  • Child support payments
  • Damage awards for physical injury or sickness
  • Cash rebates from a dealer or manufacturer for an item you buy
  • Reimbursements for qualified adoption expenses
For more on this topic see Publication 525, Taxable and Nontaxable Income. Visit www.IRS.gov or call to have it mailed at 800-TAX-FORM (800-829-3676).

Source: IRS