What Income is Taxable and Non-Taxable?

Although our tax system can be complex in some situations, it can also be quite straightforward. You’re liable for taxes on your taxable income, and how much you owe is based on the kind of income you have.

Most income is taxable, but there’s non-taxable income as well. We’ll take a look at some examples of both types of income.

Taxable income

There are many types of taxable income. The income you earn from working as an employee is taxable, as well as the income you earn when you’re a self-employed business owner.

Employment income. You’re supposed to report income from wages, fees, commissions, tips, stock options, and even fringe benefits (the extra perks you get from your employer apart from your regular pay) on your tax return. The fringe benefits you receive, even if you don’t receive cash, are taxable as income and reported on your W-2 form. In addition, even if fringe benefits are given to or used by someone else, you may still be considered the recipient and liable for the tax.

Investment income is also considered taxable. This includes income from the sale of investments which is subject to capital gains tax. You also pay taxes on income from interest earned on deposits, as well as from dividends paid out. Gains on collectibles sold (which includes physical metals) are also reported as taxable income.

Royalties. You have to report taxes on income from royalties. This includes royalties from copyrights, patents, and properties that produce mineral, oil, and gas. 

Bartering income. You’re also responsible for taxes on bartering income. You will need to figure your gain for what you received in barter, although you can offset the income with the bartering services expenses or other items you provided.

Prizes are also taxable. (Gifts aren’t. See below.)

Gambling and sports bets winnings are considered taxable income. This applies even if you aren’t a professional gambler. If you win money from lotteries, raffles, horse races, casinos, or sports bets — that money is subject to income tax. Dig into it with our taxes on gambling winnings guide.

Non-taxable income

There are a few income sources that aren’t taxable. 

Selective disability insurance payments. While payments from a policy paid for by your employer are taxable, there is an exception. If you paid the premiums on the plan with after-tax dollars, then the disability payments aren’t taxable.

Gifts are tax free. Taxes on gifts are paid by the giver, although the giver doesn’t have to pay taxes until the gift exceeds the exemption amount.

Life insurance policies. You typically don’t pay taxes when you are the beneficiary of a life insurance policy.

Municipal bonds are most often tax-free at the federal level and sometimes at the state level (if you live in the state of issuance).

No matter what moves you made last year, TurboTax will make them count on your taxes. Whether you want to do your taxes yourself or have a TurboTax expert file for you, we’ll make sure you get every dollar you deserve and your biggest possible refund — guaranteed.