What's Taxable, What's Not
Not everything you got is fair game for the tax man.
Although most of the income you receive during the year is taxable, there are some exceptions. As you tackle your 2010 tax return, here’s a quick rundown of what’s taxable and what’s not.
Generally, tax-free income can be divided into several categories, including canceled debt; certain employer payments; prizes and awards giving for an achievement; gifts and inheritances; insurance claims and life insurance proceeds.
Some examples of tax-free employer benefits include 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.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Other income that is tax-free includes: child support payments, workers’ compensation benefits and welfare payments. Gifts, bequests and inheritances are not taxable. Neither are compensatory damages awarded for physical injury or illness, nor cash rebates from dealers or manufacturers.
Some income is taxable under certain circumstances, but not others. For example:
Life insurance. If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds, which were paid to you because of the insured person’s death, are not taxable (unless the policy was turned over to you for a price as in a life settlement agreement).
Scholarships and awards. If you are a degree candidate, you can exclude amounts you receive as a qualified scholarship or fellowship; amounts used for room and board do not qualify. Prizes or awards given for outstanding educational, literary or civic achievement are not taxed. Prizes and awards won in contests are taxable, as are scholarships given as contest prizes if the recipient is not required to use the prize for education.
Bartering. When you exchange property or services in lieu of cash, the fair market value of the goods and services are fully taxable and must be included as income on Form 1040 of both parties. But an informal exchange of similar services on a noncommercial basis, such as carpooling, is not taxable.
Legal settlements that replace taxable income are taxable, as are damages paid on account of personal injuries that are not physical, such as discrimination, invasion of privacy, libel, slander or defamation. Damages received on account of physical injury or illness, including emotional distress, are not.
Gambling winnings are taxable, but they can be offset by gambling losses if you itemize your deductions.All other items—including income such as wages, salaries, tips and unemployment compensation –are fully taxable and must be included in your income unless specifically excluded by law. For example, some or all of your Social Security benefits may be tax-free, depending on your income.
For a full list of what’s taxable and what’s not, see Publication 525, Taxable and Nontaxable Income or by calling the IRS at 800-TAX-FORM (800-829-3676).
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
-
Four Essential Michael Jordan Quotes on Life in RetirementThe GOAT of basketball on how he spends his time and what he misses.
-
Three Critical Tax Changes Could Boost Your Paycheck in 2026Tax Tips The IRS predicts these tax breaks may change take-home pay in 2026. Will you get over $1,000 in tax savings?
-
Three Critical Tax Changes Could Boost Your Paycheck in 2026Tax Tips The IRS predicts these tax breaks may change take-home pay in 2026. Will you get over $1,000 in tax savings?
-
The Rubber Duck Rule of Retirement Tax PlanningRetirement Taxes How can you identify gaps and hidden assumptions in your tax plan for retirement? The solution may be stranger than you think.
-
RMDs, Roth, and SS: Test Your Knowledge of Retirement Tax RulesQuiz Don't let the IRS catch you off guard. Take our quiz to reveal common retirement tax rules that could save (or cost) you thousands.
-
IRS Updates 2026 Tax Deduction for People Age 65 and OlderTax Changes Adjustments to the extra standard deduction can impact the tax bills of millions of older adults. Here are some new amounts to know for 2026.
-
IRS Reveals New 2026 Child Tax Credit and other Family Credit AmountsTax Credits Key family tax breaks are higher for 2026, including the Earned Income Tax Credit and the Adoption Credit. Here's what they're worth.
-
Standard Deduction 2026 Amounts Are HereTax Breaks What is the standard deduction for your filing status in 2026?
-
Claiming the Standard Deduction? Here Are Five Tax Breaks for Retirement in 2025Tax Tips If you’re retired and filing taxes, these five tax credits and deductions could provide thousands in relief (if you qualify).
-
New Tax Rules: Income the IRS Won’t Touch in 2025Income Taxes From financial gifts to Roth withdrawal rules, here’s what income stays tax-free under the new Trump 2025 tax bill, and some information on what’s changed.