Taxable vs Nontaxable Income
Taxable Income is any income that is subject to tax. It must be reported on a tax return unless the amount is so small that you are not required to file a return. The following types of income are taxable:
- Wages, salaries, bonuses, and commissions
- Tips and other compensation for personal services
- Interest/Dividends (unless tax-exempt)
- Alimony received or separate maintenance payments received
- Recoveries of items deducted in the prior year(s)
- Business income
- Hobby income (a hobby loss is not deductible)
- Capital gains
- Gain from the sale of property
- Pensions and annuities (part may be nontaxable)
- IRA distributions (part or all may be nontaxable)
- Rents received
- Royalties
- Estate, trust, or K-1 income
- Unemployment compensation
- Railroad retirement benefits (part may be taxable)
- Social security benefits (part may be taxable)
- Jury duty pay
- Executors’ fees
- Gambling winnings (including lotteries, contests, raffles, etc.)
- Nonqualifying scholarships and fellowships
- Payments for punitive damages and compensatory damages not attributable to physical injuries or sickness.
- Bartering income
- Some canceled debts
- Foster care payments
- Military pensions
Nontaxable Income is income that is exempt from tax. If a return must be filed, some types of nontaxable income will be shown on your return but will not be added to the amount of income subject to tax. The following types of income are nontaxable:
- Child support
- Gifts, bequests, and inheritances (may be subject to other taxes)
- Life insurance proceeds
- Certain veteran’s benefits
- Buildup of cash or loan value of life insurance
- Insurance reimbursement of medical expenses not previously deducted
- Most life insurance proceeds are paid upon death
- Public assistance payments
- Workers’ compensation
- Dividends on veteran’s life insurance loans
- Compensatory damages for personal physical injury or physical illness