What Is IRS Publication 525?
Publication 525, Taxable and Nontaxable Income is a document published by the Internal Revenue Service (IRS) detailing what types of income taxpayers should consider taxable or nontaxable when filing a return.
A taxpayer's income can come from a number of sources other than regular employment, and can include exchanges of property or even bartering. Unless a type of income is specifically exempted from taxation by law, it will be considered taxable income.
Understanding Taxable And Nontaxable Income
Publication 525 outlines how employees are to treat income from retirement plans, stock options, and fringe benefits. It also describes how certain employee types, such as military personnel and clergy should report income. Publication 525 helps taxpayers understand how to report income from business partnerships or investment real estate and how to treat disability, sickness and other benefits.
Publication 525 is updated regularly to reflect any changes in tax code or regulations. Updates may include things such as disaster tax relief for residents recovering from natural disasters, such as hurricanes.
Taxable income includes any salaries, wages, and tips. However, there are many other categories of taxable income.
Income that is available to a taxpayer, whether or not that person actually possesses it, is considered taxable. For example, a paycheck that has been handed to a taxpayer before the end of the tax year is considered taxable income, even if the person has not cashed that check by the year’s end. Likewise, income that is received by an agent of a taxpayer on their behalf is considered taxable, even if that third party has not yet handed the money over to the taxpayer.
Prepaid income is also considered taxable. For example, if a contractor is paid $10,000 to begin a construction job on a house, but fails to complete the job before the end of the tax year, that $10,000 is still taxable, since the contractor received the payment.
Grants are also considered taxable income, as is interest earned through most investment vehicles. Fringe benefits are also considered taxable income.
7 Sources Of Nontaxable Income
Non-taxable income includes welfare payments and healthcare benefits. Inheritances and gifts are not taxable either. Child support payments, cash rebates on items purchased, and money reimbursed from qualifying adoptions are also not considered taxable income by the IRS.
If a person receives money through a life insurance policy due to the death of the policyholder, that income is not taxable. However, if that person simply cashes in that life insurance policy, income received through cashing in the policy may be taxable.
Some scholarships are not taxable, though what the scholarship money is used for can determine whether or not the recipient must pay taxes on it.