Taxable vs. Nontaxable Income
Feb 28, 2023
Not all income is subject to federal income tax. It’s important to understand the difference between taxable and nontaxable income to limit your tax liability when filing your taxes.
Here are some examples of each. However, keep in mind that there may be exceptions to these categories based on the amount of a particular item or even your income as a whole. For guidance on your unique situation, schedule an appointment with one of our tax professionals.
Examples of Taxable Income
- Salaried or hourly wages
- Bonuses and commissions
- Unemployment benefits
- Interest, dividends, and capital gains
- Rental income from a property
- Alimony payments
- Social Security benefits (depending on your income level)
Examples of Nontaxable Income
- Gifts (up to $16,000 in 2022 and $17,000 in 2023)
- Inheritances (up to $12.06 million in 2022 and $12.92 million in 2023)
- Welfare, disability, and veteran benefits
- Workers' compensation benefits and other awards for damages, injury, or illness
- Child support payments
- Reimbursements for certain qualifying adoption expenses
- Cash rebates
These sources of income are only taxed under certain conditions:
- Life insurance: While the proceeds of a policy are not taxed, if you cash out for an amount greater than the cost of the policy, that income is taxable.
- Qualifying scholarships: Scholarships covering costs like tuition and books are not taxed. However, scholarships for items like room and board are taxable. If a scholarship covers multiple uses, then the taxed amount is based on how the money is used.
- Tax refunds: That’s right. If you receive a refund, you might have to pay tax on the refund.
- Certain types of retirement income. See our story on Tax Benefits for Retirees and Older Adults for details.
Our tax professionals can offer guidance on tax planning strategies to help you minimize your tax liability. If you have questions or want help preparing your taxes, please contact us.
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