Taxable vs. Non-Taxable Income
What Types of Income Are Subject to Tax?
Are you trying to determine whether or not all of your income is taxable? While the IRS considers most types of income to be fully taxable, there are certain instances where your income may not be subject to tax.
Essentially, all income is considered taxable unless it’s specifically excluded by the law. Income can be in the form of money, property, or services that you receive. In general, you are taxed on the income that’s available to you, whether or not it’s actually in your possession. All taxable income must be reported on your Federal tax return and is subject to taxation.
Types of taxable income include the following:
- Commissions (including advance commissions)
- Stock options
- Interest received
- Unemployment compensation
- Back pay awards (from a settlement or judgment)
- Bonuses and awards (including vacation trips)
- Differential wage payments
- Notes received for services
- Severance pay
- Social Security and Medicare taxes paid by your employer
- Stock appreciation rights (in the year they’re exercised)
- Cancelled/forgiven debt
- Non-cash income from bartering
- Financial counseling fees paid for you by your employer
- Royalties from copyrights, patents, and oil, gas, and mineral properties
- Rents from personal property
- Capital gains and losses
- Gambling income and losses
In some instances, the income you receive is not subject to tax. However, it’s important to note that while certain types of income are non-taxable, you may still need to report those items on your tax return.
Types of non-taxable income include the following:
- Child support payments
- Reimbursements for qualified adoption expenses
- Gifts, bequests, and inheritances
- Cash rebates from a dealer or manufacturer for an item you buy
- Welfare benefits
- Damage awards for physical injury or sickness
- Meals and lodging for the convenience of your employer
Income That May or May Not Be Taxable
Some types of income are non-taxable, but only under certain conditions (such as an exclusion provided by the IRS). Depending on the situation, your income may be fully taxed, partially taxed, or not taxed at all.
Types of income that may or may not be taxable include the following:
- Life insurance
- Scholarship or fellowship grant
- Non-cash income
- Employee achievement award
- Government cost-of-living allowances
- Nonqualified deferred compensation plans
- Nonqualified deferred compensation plans of nonqualified entities
- Sick pay
- Refunds, credits, or offsets of state/local income taxes
- Fringe benefits
- Workers’ compensation benefits
- Social Security benefits
- Virtual currencies
Note that the above examples are not all-inclusive. For more information, please see IRS Publication 525 (Taxable and Nontaxable Income).