What Income is Non-Taxable?

This week we hear from Rodney in Glyndon:

Dear Alice,

I received a nice rebate for a refrigerator I purchased, is this taxable?  Heck is there anything that is not taxable?

Rodney

Dear Rodney,

Specific to the rebate you received, no it’s not taxable to you.  And there are a few other things that aren’t taxable:

Employer Payments and Benefits

Examples are expense account reimbursements, deductible employer-paid moving expenses, qualified adoption assistance and dependent care, fringe benefits for commuting expenses and up to $5,250 of qualified education assistance as well as prizes and awards given for an achievement (employee awards).

Gifts, Bequests and Inheritances

Gifts and inheritances are never taxable to the recipient since they are primarily transfers of assets rather than bona fide income; however there may be some taxes to the estate or the giver of the gifts.

Insurance Claims and Life Insurance Proceeds

Workman’s compensation benefits and compensatory damages awards for physical injury or illness are not taxable, nor are life insurance proceeds provided you did not cash out a policy.  As long as you received the proceeds as the beneficiary of the life insurance policy, the funds are not taxable to you.  Further insurance claims that compensate for property damages are not taxable, however, if you are over compensated for a property claim, this could trigger a taxable event.

Some other examples of non-taxable income are child support payments received (nor are they deductible by the parent who pays them), welfare and public assistance and, of course, cash rebates received from dealers or manufacturers.

So you see, there are some things that are not taxable to you.    

I hope this information is helpful.

Many Happy Returns!

Alice A. Reid, EA

Disclosure: The nature of taxation is complex and information used to complete your personal tax return is dynamic – meaning that one area of your tax return can affect others, while our goal is to provide you with good general information, IRS may require certain documentation or substantiation to support any tax position you take on your tax return.  If your issue is complex we recommend you talk to a tax professional who can better understand your entire tax situation and advise you appropriately.