Taxable and Non Taxable Income

This video was published by the IRS.

As you know, most income is taxable, and must be reported on your Federal Income Tax Return. But what you may not know is that some income is only partially taxable, or not taxed at all.

For example, child support payments and welfare benefits are tax-free. Gifts and inheritances are generally tax-free to the recipient, but depending on the amount, the giver may owe a tax. Alimony payments are also tax-free to the recipient for divorce agreements made or updated in 2019 or later.

On the other hand, income may be taxed in some situations but not in others. For example, Social Security benefits are usually tax-free unless your income is above certain levels. In that case, you pay tax on part of your benefits. Court awards, or settlements from personal injury or sickness, are normally tax-free. Punitive damages or compensation for lost damages are usually taxable.

Money you take out of a traditional IRA is generally taxable, but money you take out of a Roth IRA is usually tax-free. For both types of IRAs there is usually a penalty if you take an early withdrawal. But remember, income such as wages, salaries, tips, and bartering is taxable.

You can use the interactive tax assistant tool at the IRS website to learn whether you have specific types of income that are taxable. Just go to IRS.gov/ITA to get started. Or download Publication 525, Taxable and Non-Taxable Income, at IRS.gov to learn more.