What Is Exempt and Non-Reportable for Taxes?

With the U.S. tax laws changing virtually every year, it's sometimes hard to know what is taxable income and what is non-taxable. Knowing the difference can save you big bucks when it comes to filing your yearly return. Some payments and compensation may at first glance seem like obvious inclusions in your income tax reporting, but there can be exceptions to the rule. If you have any doubt about what you should report, do some careful digging before putting it on your return.

Veterans Benefits

Many veterans benefits are non-taxable.

Many veterans benefits and payments are exempt from income tax, according to the Internal Revenue Service. Examples of some of these benefits are education allowances, disability and pension payments, dependent care assistance and veterans insurance proceeds/dividends, to name a few. These payments are exempt whether paid directly to the veteran or to his beneficiaries.

Disaster Relief Payments

Disaster relief payments are exempt from income tax.

Payments or reimbursements you received from a qualified disaster relief program are non-taxable. Types of relief payments included are family living expenses, funeral expenses for a death caused by the disaster, home repair, and any payments from the state, federal or local government in the interest of public welfare. Qualified disasters include terrorist attacks, required military actions and federally declared disaster areas.

Down Payment Assistance

Down payment assistance is not included in taxable income.

Receiving down payment assistance form a nonprofit organization when purchasing a home is considered non-reportable income. This type of payment is viewed as a gift and is included in the value of your house. If you receive a payment from a for-profit organization, this is also non-taxable and is seen as a rebate or discount on the purchase price of the house.

Work-training Programs

Welfare payments for work training are not taxable.

Payments you receive from your state welfare agency to take part in a work-training program are not considered income. The exception to this, however, is that the payments you receive for training must be less than the benefit amount you would have received for regular welfare unemployment income. In this case you would be required to report the payments on your tax return a pay the appropriate taxes.

Accelerated Death Benefits

Payments for long-term care for a chronic illness are non-taxable.

Payments you receive from a life insurance policy due to a terminal illness or chronic illness are exempt from taxation. In the event of terminal illness you need certification from a qualified physician that the eminent demise of the insured will be within a 24-month period. Non-taxable payments received for a chronic illness include long-term care services from a qualified organization or practitioner.

References

• Form 525