Is It Taxable?

Cancelled Debts

Taxable -

  • The amount of the debt is taxable if the amount of the debt that is no longer owed was a personal liability for the taxpayer.

Not taxable-

  • Any cancelled debt that would have been deductible.
  • Student loans cancelled after performance of the work.
  • Debt that was cancelled in a Title 11 bankruptcy case or because the taxpayer was insolvent.
  • Debt that was qualified farm indebtedness or qualified real property business indebtedness.
Foster Care Payments

Taxable -

  • All payments if care is not provided in the taxpayer's main home. [Sch. C Income]
  • All payments if the provider cares for more than five individuals age 19 or older.[Sch. C Income]
  • All difficulty-of-care payments if the provider cares for more than five individuals age 19 or older, or for more than 10 younger individuals.[Sch. C Income]

Not Taxable -

  • Payments received from a state, political subdivision or qualified foster care placement agency for providing foster care in the taxpayer's home if no more than five individuals age 19 or older are cared for. In the case of any difficulty of care payments received, no more than 10 individuals under age 19 or five individuals age 19 or older are cared for.
    Note: A foster child may qualify as a dependent of the taxpayer if the child was a member of the taxpayer's household the entire year and other dependent qualifications are met.
Gambling Winnings, Prizes and Awards

Taxable -

  • Gambling Winnings are taxable. Proceeds from wagers including events sponsored by charities and comps from casinos are taxable. Gambling winnings can be offset by losses from waginer on Schedule A. Transportation, meals and lodging expenses are not deductible for nonprofessional gamblers.
  • Fair market value of prizes and awards won in contests are taxable.
  • Scholarships given as contest prizes if the recipient is not required to use the prize for education.

Not taxable -

  • Prizes or awards given for outstanding educational, literary or civic achievement,
  • Selected without any action on the taxpayer's part,
  • The taxpayer is not required to perform services, and
  • The taxpayer assigns the prize to a government unit or tax-exempt charitable organization.
Gifts and Inheritance

Taxable -

  • Income in respect of a decedent - items that would have been included in gross income if received by the decedent prior to death (IRAs, accrued interest and dividends, tax-deferred annuities, series EE bond interest, etc.).

Not taxable -

  • Propery received from a decedent. The estate of the decedent may be liable for estate tax.
  • Gifts. Cash, property, below-market sales, forgiven debts, part interests in property. The giver is subject to gift tax rules.
Life Insurance Proceeds

Taxable -

  • Interest on proceeds held by the insurer after the insured's death.
  • Proceeds from a policy transferred for valuable consideration prior to the death of the insured.
  • Accelerated death benefits paid to a business or a business partner.

Not taxable -

  • Proceeds paid because of the death of the insured.
  • Certain accelerated death benefits. Insurance proceeds paid by an insurer or viatical settlement provider if the insured is terminally ill, regardless of use of the proceeds. Terminal illness requires a physician's certificate that the insured's illness can reasonably be expected to result in death within 24 months.
  • Accelerated death benefits paid to a chronically ill individual if used for long-term care services for the insured. Per diem benefits over $175 per day are taxable. Generally, chronic illness requires severe cognitive impairment or the inability to perform daily living activities.
Scholarships and Fellowships

Taxable -

  • Amounts received by a student who is not a degree candidate.
  • Payment for services even if the grant is conditioned on the performance of services.
  • Any amount used for room, board or expenses other than tuition, fees and course requirements.
  • An otherwise nontaxable amount if the taxpayer elects to claim the scholarship as income to qualify for an education credit. This election is also available for Coverdell ESA distributions. Report taxable amounts on line 7. If taxable amount is not reported on Form W-2, write "SCH" and the taxable amount in the space to the left of line 7.

Not taxable -

  • Amounts received by a degree candidate that are used for tuition and fees required for enrollment, and fees, books, supplies and equipment required for courses.
  • Reduced tuition received by an undergraduate because the student or parent is a school employee, if the tuition program does not favor highly paid employees. Reduced tuition received by a graduate student performing teaching or research.
  • Amounts received by degree candidates from NHSC or Armed Forces scholarship programs for tuition, fees, books, supplies and equipment.
Sick Pay and Disability

Taxable -

  • Amounts paid by an employer.
  • Amounts paid by an insurer attributable to premiums paid by an employer.
  • Sick pay and disability income prior to retirement age are taxed as wages. The payer must issue Form W-2 even if all benefits are nontaxable. Taxable benefits are reported in box 1. Nontaxable benefits are reported under Code "J" in Box 12. Classification of payments as sick or disability pay depends on the plan, not on the degree of disability or duration of payments.

Not taxable -

  • Amounts paid by an insurer attributable to premiums paid by the taxpayer. Premiums paid by the employer and included in box 1 of the employee's Form W-2 are attributable to the employee.
  • Disability compensation for permanent loss or loss of use of a part or function of the body, or for a permanent disfigurement. The payment must be calculated without regard to any period of absence from work. The payment is not taxable even if the employer paid for the policy.
Wage Replacements

Taxable -

  • Railroad sick pay for an injury that is not job related.

Not Taxable -

  • Workers' compensation paid to the worker or survivor.
  • Railroad sick pay for an on-th-job injury.
  • No-fault benefits for loss of earnings or earning capacity.
  • Annuities paid by a government plan to public safety officers killed in the line of duty.