You may think that regardless of the type of income, it is subject to tax.
However, the income you receive throughout the year is either taxable or nontaxable. Nontaxable income would not be taxed, even if you report it on your tax return. The IRS deems the following forms of income not subject to tax:
1. Life insurance payments
Every insured individual has a set life insurance policy and this amount is nontaxable. If you receive a cash payment that exceeds the life insurance policy, however, the amount exceeding the policy is taxable.
2. Grants from qualified scholarships
If you used your scholarship grant to purchase textbooks or pay for your tuition is nontaxable, however, any amount used for room and boarding is taxable.
3. Disability Income
If you paid premiums yourself, you do not pay taxes on disability income.
4. Worker’s Compensation
If you receive payments due to a work-related illness or physical injury, this income is exempt from taxes.
5. Social Security
If you rely on Social Security benefits, 85% will be subject to tax if your income is above the limit.
6. Employer-Sponsored Insurance
7. Veteran’s Benefits
Paid benefits to veterans and their families are deemed nontaxable. For instance, this includes education, training, allowances, compensation for disability, work therapy programs, pension, grants for homes and vehicles, insurance, interest on dividends, dependent-care assistance program, death gratuity and bonuses provided by state and subdivisions.
8. Combat Pay
You must be stationed in a combat zone.
9. Alimony and Child Support payments
10. Welfare Benefits
11. Cash rebates
Once a customer receives a discount at the time of the purchase, or money will be sent out to a customer after paying full price, this is called a “rebate”. For example, this includes any item purchased from a dealer or manufacturer.
12. Reimbursements from qualified adoption expenses
13. Disaster Relief Grants
If you received any payments after a natural disaster to support your essential needs such as medical, dental, housing, personal property, and transportation it is exempt from taxes.
14. Monetary gifts, bequests, and inheritances
The gift must be under the gift tax limit or the giver may owe gift tax.