Certain types of income are considered nontaxable by the IRS and therefore do not need to be reported on your tax return.
Understanding Non-Reportable Income
Not all money you receive is considered taxable income by the Internal Revenue Service (IRS). The IRS defines specific categories of funds that are exempt from income tax, meaning you are not required to include them when calculating your gross income for tax purposes, nor do you need to report them. This includes various forms of financial support, compensation, and gifts that are not classified as earnings.
Types of Income You Do Not Need to Report
The following table summarizes common types of income generally considered nontaxable and thus not necessary to report:
| Category | Examples / Description |
|---|---|
| Gifts & Inheritances | Money or property received as a gift or through an inheritance. |
| Support Payments | Child support payments; alimony payments from divorce decrees finalized after 2018. |
| Rebates & Benefits | Cash rebates; most healthcare benefits; welfare payments. |
| Qualified Reimbursements | Money reimbursed for qualifying adoptions. |
Detailed Overview of Non-Taxable Income
While the above table provides a summary, here's a more in-depth look at income types that typically do not need to be reported:
- Inheritances: Money or property you receive as an inheritance is generally not considered taxable income to the recipient. However, the estate itself might be subject to estate taxes, but this is typically paid by the estate, not the beneficiary.
- Gifts: Similar to inheritances, gifts of money or property are generally not taxable income to the person receiving the gift. The person who gives a large gift might be subject to gift tax, but this is usually paid by the giver, not the receiver.
- Cash Rebates: If you receive a cash rebate for an item you purchase, such as a refund from a car manufacturer or a store, this is usually viewed as a reduction in the purchase price, not as taxable income.
- Alimony Payments: For divorce decrees or separation agreements finalized after December 31, 2018, alimony payments are no longer considered taxable income to the recipient, and they are not deductible by the payer. This marks a significant change from prior tax laws.
- Child Support Payments: Payments received for child support are consistently deemed nontaxable income. They are also not deductible by the payer.
- Most Healthcare Benefits: Benefits received through various healthcare plans, including those that reimburse medical expenses, are typically not taxable. This can include reimbursements from health savings accounts (HSAs) or flexible spending accounts (FSAs) for qualified medical expenses.
- Welfare Payments: Payments received from general welfare funds, such as state or local government welfare programs, are generally not considered taxable income. These payments are designed to support basic living needs and are therefore exempt from taxation.
- Money Reimbursed from Qualifying Adoptions: Financial assistance or reimbursements received for expenses related to a qualifying adoption are usually excluded from taxable income. This encourages adoption and helps offset the significant costs involved.
Why Certain Income Isn't Reported
The IRS distinguishes between taxable income, which generally includes wages, salaries, business profits, interest, and dividends, and nontaxable income. Non-taxable income is typically excluded because it's not viewed as a direct gain or earning, or it serves specific social or economic policy goals. For instance, inheritances are often subject to estate tax at the estate level, avoiding double taxation for the beneficiary. Child support and welfare payments are generally considered essential support rather than earnings.
Important Note
While these categories of income are generally not taxable or reportable, specific circumstances can sometimes lead to exceptions or nuances. It is always advisable to consult with a qualified tax professional for personalized advice, especially if you have complex financial situations or questions about specific types of income you receive.
