Tax season is upon us, and the Internal Revenue Service is reminding taxpayers that most of their income in 2011 must be reported. Nevertheless, there are some forms of income, such as child support payments, welfare benefits and cash rebates, that don't need to be listed as taxable income.
Adoption expense reimbursements, as long as they're for qualifying expenses, don't count as taxable income. Nor do gifts, bequests and inheritances, as well as most workers' compensation benefits and compensatory damages awarded for physical injury or sickness. Money given to you for meals and lodging for your employer's convenience is also not taxable.
Nevertheless, some income may or may not be taxable, depending on the situation. Here are some examples of this sort of income, according to the IRS:
- Life insurance. People surrender a life insurance policy for cash must report as income any proceeds that were more than the cost of the policy. On the other hand, people who receive proceeds from a life insurance policy after the insured person's death generally don't have to declare them as income.
- Scholarship or fellowship grants. People who are degree candidates don't have to include scholarship or fellowship grant income; however, any money used towards room and board must be declared as taxable income.
Additionally, non-cash income might be subject to taxation. According to the IRS, "taxable income may be in a form other than cash," such as bartering. Though no cash has changed hands, "the fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties," the IRS says.
All other income—including tips and unemployment compensation—is subject to taxation.
For more information, see IRS Publication 525 (Taxable and Nontaxable Income) on the IRS.gov website or call the IRS at 800-TAX-FORM (800-829-3676).