Some Income Does Not Have To Be Listed On Tax Return

The Internal Revenue Service (IRS) works very hard to make sure every taxpayer pays taxes on all eligible income. But some income, it turns out, does not have to be reported.

Knowing which income does, and does not have to be listed on your tax return can both save you money and keep you out of trouble.

Here's a quick overview of exempt income, according to the IRS:

If you are divorced and receive child support, that is not taxable income and does not need to be listed. Neither do welfare benefits.

Gifts, bequests, inheritances

You do not have to report gifts, bequests and inheritances, within certain guidelines. For example, there is not tax on a gift to your child if it is less than $13,000.

Life insurance may or may not be taxable income. If you surrender a life insurance policy for its cash value, that's reportable income. However, if you receive a death benefit from a life insurance policy, that is generally not reportable income.

Let's say you are injured on the job and receive worker compensation. That money is not considered income that must be reported. If you are awarded damages in a lawsuit to compensate your for an injury or illness, that too is tax-free income.

Education

Education grants are a little tricky. If you receive money from a scholarship or fellowship, it does not have to be reported as income, as long as the money is used to pay tuition and other direct education fees. However, any of the money used to pay room and board is taxable income and must be reported.

Some income can be in a form other than cash, and almost always that must be reported as income. For example, barter is a form of non-cash income. Though no cash has changed hands, the fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties.