Tab D: Taxable & Nontaxable Income

Click to enlarge image below:

In general, the rule is "All income is subject to taxation unless it is explicitly excluded from taxation."  In particular, scholarships may be taxable income!  See here for more on taxable scholarship income.

Tables A and B on page D-1 at left show examples of income that are taxable and non-taxable.

Make special note of the distinctions noted in the table at left.  Many taxpayers and preparers are confused about the differences between:

Alimony vs. Child Support:  Many taxpayers think they are receiving alimony, when they are actually receiving child support.  It makes a big difference!  Alimony is taxable income to the recipient, but child support is not taxable.  Also, alimony paid is tax deductible by the payor, but child support is not deductible.  If in doubt as to whether the taxpayer is receiving alimony or child support, see here.

Social Security Benefits vs. Supplemental Security Income:  Social Security Benefits may be partially taxable (depending on how much other income the taxpayer has) but Supplemental Security Income is NEVER taxable.  What is the difference:  Social Security is NOT means-tested!  Even Warren Buffett is eligible to collect Social Security.  Supplemental Security IS means-tested and goes only to those elderly or disabled who are very low-income.

Unemployment Compensation vs. Worker's Compensation:  Unemployment benefit payments are generally taxable but Worker's Comp payments are NOT taxable.  What is the difference?  UC goes to workers who have lost their jobs, while WC goes to workers who have been injured on the job.