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Is All Income Created Equal?

An Explanation of Taxable and Non Taxable Income

Do you know which sources of income are Taxable and which are Not Taxable?  Do yourself a favor and be sure you fully understand the difference.  It could make a sizable difference in your federal tax refund. 

Most types of income are taxable, but some are not. Income can include money, property or services that you receive. Here are some examples of income that are usually not taxable:

  • Child support payments;
  • Gifts, bequests and inheritances;
  • Welfare benefits;
  • Damage awards for physical injury or sickness;
  • Cash rebates from a dealer or manufacturer for an item you buy; and
  • Reimbursements for qualified adoption expenses.

Some income is not taxable except under certain conditions. Examples include:

  • Life insurance proceeds paid to you because of an insured person’s death are usually not taxable. However, if you redeem a life insurance policy for cash, any amount that is more than the cost of the policy is taxable.

  • Income you get from a qualified scholarship is normally not taxable. Amounts you use for certain costs, such as tuition and required course books, are not taxable. However, amounts used for room and board are taxable.

All income, such as wages and tips, is taxable unless the law specifically excludes it. This includes non-cash income from bartering - the exchange of property or services. Both parties must include the fair market value of goods or services received as income on their tax return.

If you received a refund, credit or offset of state or local income taxes in 2012, you may be required to report this amount. If you did not receive a 2012 Form 1099-G, check with the government agency that made the payments to you. That agency may have made the form available only in an electronic format. You will need to get instructions from the agency to retrieve this document. Report any taxable refund you received even if you did not receive Form 1099-G.

If you still have questions, feel free to post them here.

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

Lindsay Toler February 14, 2013 at 09:40 PM
Awesome post, Monica! Thanks for sharing this. Very useful!
Mike K February 15, 2013 at 04:40 AM
Child Support payments are most definitely taxable. Ask any single parent paying child support. They are taxed on every penny of child support earned and paid and get no deduction for it.
Melissa Campbell February 15, 2013 at 02:04 PM
That is a sad short list.........There used to be NO income tax, but now we are taxed coming and going.
Melissa Campbell February 15, 2013 at 02:07 PM
Speaking of taxes, "This January Americans for Prosperity MO launched an effort to assemble information on all types of tax increases, fee increases, bonding measures, use taxes, etc. on April ballots across Missouri. We found Missourians will vote on over 229 proposed tax increases in local elections this April. A staggering 80% of Missouri counties have at least one form of a tax increase proposal on the ballot." http://americansforprosperity.org/missouri/special_project2/no-mo-spending-2/

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