Salary Slip Generator

Taxable vs. Non-Taxable Income Guide

A quick reference to see if a source of income is generally taxable by the IRS.

Educational Tool Only

Tax law is complex and has many exceptions. This is a simplified guide, not tax advice. Consult a tax professional.

Wages, salaries, tips

Generally Taxable

Generally taxable unless it's a specific fringe benefit.

Freelance / 1099 income

Generally Taxable

Net income after business expenses is taxable.

Bartering income

Generally Taxable

The fair market value of goods/services is taxable.

Business income

Generally Taxable

Profit from a business you operate.

Investment interest

Generally Taxable

Interest from bank accounts, bonds (except municipal).

Dividends

Generally Taxable

Distributions from stocks, taxed at different rates.

Capital gains

Generally Taxable

Profit from selling an asset like stock or real estate.

Rental income

Generally Taxable

Income from renting out property (net of expenses).

Alimony (divorces after 2018)

Generally Non-Taxable

For agreements executed after 2018, alimony is not taxable to the recipient.

Child support payments

Generally Non-Taxable

Never taxable to the recipient or deductible by the payer.

Gifts and inheritances

Generally Non-Taxable

Generally not taxable to the recipient. Giver may have to pay gift/estate tax.

Life insurance proceeds

Generally Non-Taxable

Proceeds paid due to the death of the insured are not taxable.

Most scholarship/fellowship grants

Generally Non-Taxable

If used for tuition and fees. Amounts for room and board are taxable.

Workers' compensation

Generally Non-Taxable

Benefits for occupational sickness or injury are not taxable.

Personal injury settlements

Generally Non-Taxable

Settlements for physical injury or sickness are not taxable. Punitive damages are.

Disability benefits (if you paid premiums)

Generally Non-Taxable

If paid with after-tax dollars, benefits are tax-free.

Welfare benefits

Generally Non-Taxable

Cash assistance from a state or local government agency.

Social Security (depending on income)

Generally Taxable

Up to 85% of benefits can be taxable depending on your 'combined income'.

Unemployment compensation

Generally Taxable

Fully taxable and must be reported as income.

Gambling winnings

Generally Taxable

You must report all winnings. You can deduct losses only if you itemize.

Canceled debt (in some cases)

Generally Taxable

If a lender forgives a debt, it may be considered taxable income.

What Counts as Income? The Taxable vs. Non-Taxable Income Guide

One of the most fundamental questions in U.S. taxes is: "Do I have to pay tax on this?" The answer is not always obvious. While wages from a job are clearly taxable, what about a cash gift, a scholarship, or a legal settlement? The Taxable vs. Non-Taxable Income Guide is a quick-reference tool designed to help you understand whether a particular source of funds is likely considered taxable income by the IRS.

The IRS generally considers all income from any source taxable unless the law specifically excludes it. This guide provides a searchable list of common income sources, from freelance earnings to inheritances, and gives a general classification for each. It helps to clarify common points of confusion, providing a starting point for your research and tax planning. By understanding what is and isn't taxable, you can ensure you are reporting your income correctly and avoiding potential issues with the IRS.

Why is Understanding Taxable Income Important?

  • Accurate Tax Filing: The most important reason is to file a correct tax return. Failing to report taxable income can lead to penalties and interest.
  • Financial Planning: When you receive a windfall like an inheritance or a settlement, knowing it's non-taxable helps you plan its use accurately. Conversely, knowing a bonus will be taxed helps you budget for the net amount.
  • Avoiding Scams: Many scams involve false claims about "tax-free" government grants or prizes. Knowing the general rules can help you spot these red flags.
  • Empowerment: It demystifies a core part of the tax system, empowering you to ask smarter questions and better understand your overall financial picture.

How to Use This Guide

This tool is designed to be a fast and simple reference.

  1. Search for an Income Source: Use the search bar to type in the kind of income you received (e.g., "scholarship", "rental", "gift").
  2. Review the Results: The list will filter to show matching items.
  3. Check the Status: Each item is marked as "Generally Taxable" or "Generally Non-Taxable" with a brief note explaining the common rule. Read the note carefully, as it often contains important context.

Frequently Asked Questions (FAQ)