{"id":20655,"date":"2026-03-31T06:00:00","date_gmt":"2026-03-31T11:00:00","guid":{"rendered":"https:\/\/www.hrblock.com\/tax-center\/"},"modified":"2026-04-02T11:19:51","modified_gmt":"2026-04-02T16:19:51","slug":"sources-of-income","status":"publish","type":"post","link":"https:\/\/www.hrblock.com\/tax-center\/income\/other-income\/sources-of-income\/","title":{"rendered":"Taxable and tax free sources of income"},"content":{"rendered":"\n<p>Most income is taxable. However, you might not have to pay tax on certain types of income. Income can come to you in the form of money, property, or services. Read on to gain insight into sources of taxable and nontaxable income.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-what-types-of-income-are-subject-to-income-tax\"><strong>What types of income are subject to income tax?<\/strong><\/h2>\n\n\n\n<p>Most income you earn or receive is subject to federal income tax unless a law specifically says it\u2019s excluded. Taxable income can include money, property, or services you receive. Common types of taxable income include:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Wages and salaries<\/strong> from a job, including bonuses, commissions, and tips<\/li>\n\n\n\n<li><strong>Self\u2011employment income<\/strong> or gig work earnings<\/li>\n\n\n\n<li><strong>Interest and dividends<\/strong> from savings accounts and investments<\/li>\n\n\n\n<li><strong>Capital gains<\/strong> from selling stocks, real estate, or other assets at a profit<\/li>\n\n\n\n<li><strong>Rental and royalty income<\/strong><\/li>\n\n\n\n<li><strong>Unemployment compensation<\/strong><\/li>\n\n\n\n<li><strong>Taxable retirement income<\/strong>, such as pensions and distributions from traditional IRAs or 401(k)s<\/li>\n\n\n\n<li><strong>Other income<\/strong>, including prizes, awards, and certain benefits<\/li>\n<\/ul>\n\n\n\n<p>Some income may be partially taxable or not taxable at all, depending on the source and your situation. Examples include certain Social Security benefits, some disability benefits, gifts, inheritances, and tax\u2011exempt interest.<\/p>\n\n\n\n<p>Check out the lists below for a more comprehensive list of <a href=\"#h-taxable-income\">taxable income<\/a> and <a href=\"#h-tax-free-income\">tax-free income types<\/a>. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-taxable-income\">Taxable income<\/h2>\n\n\n\n<p>The most common types of taxable income are:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Wages, salaries, and tips<\/strong> \u2014 By law, your employer must send you a W-2 that shows how much you were paid in:\n<ul class=\"wp-block-list\">\n<li>Salary<\/li>\n\n\n\n<li>Tips \u2014 To learn more about tax breaks for tips, see our <a href=\"https:\/\/www.hrblock.com\/tax-center\/income\/wages\/reporting-tip-income\/\">No tax on tips<\/a> article.<\/li>\n\n\n\n<li>Commissions<\/li>\n\n\n\n<li>Bonuses<\/li>\n\n\n\n<li>Vacation pay<\/li>\n\n\n\n<li>Sick pay<\/li>\n\n\n\n<li>Severance pay<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Extra cash from side jobs<\/strong> \u2013Extra money you make for side jobs is taxable and is considered&nbsp;<a href=\"https:\/\/www.hrblock.com\/tax-center\/income\/other-income\/business-income\/\">self-employment income<\/a>. Report this income on Schedule C. If you make more than $400 from your side job, you\u2019ll need to file a Schedule SE and pay Social Security and Medicare taxes on the income.<\/li>\n\n\n\n<li><strong>Alimony<\/strong> \u2014 If you receive alimony as a result of a divorce decree or separation agreement executed prior to 2019, the payments you receive are fully taxable. If you paid alimony during the year, you can deduct it even if you don\u2019t itemize deductions.<\/li>\n\n\n\n<li><strong>Unemployment benefits<\/strong> \u2014 <a href=\"https:\/\/www.hrblock.com\/tax-center\/income\/other-income\/tax-on-unemployment-income\/\">Unemployment compensation<\/a> benefits are fully taxable.<\/li>\n\n\n\n<li><strong>Jury duty pay<\/strong> \u2014 Jury duty payments are taxable. However, you can deduct any part of the payment you give to your employer in exchange for continuing your salary.<\/li>\n\n\n\n<li><strong>Pension and annuity payments<\/strong> \u2014 Pension and annuity payments are taxed. However, a portion might be tax-free.<\/li>\n\n\n\n<li><strong>Awards<\/strong> \u2014 If you receive an award from your employer for your job performance, it\u2019s usually taxable. The award\u2019s fair market value (FMV) is included in your W-2 income. This can include an all-expenses-paid trip or some other type of goods or services.<\/li>\n\n\n\n<li><strong>Barter<\/strong><strong>income<\/strong>\u2014 The FMV of property or services you receive or provide in exchange for work done is taxable income. Report this income on Schedule C. You can use another form or schedule if you barter property items instead of services.\n<ul class=\"wp-block-list\">\n<li>If you\u2019re a member of a barter exchange, you should receive a Form 1099-B. This shows the FMV of all property and services you traded during the year.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Disability payments<\/strong> \u2014 If your employer pays the premiums for your disability insurance, disability payments you receive are usually fully taxable. However, if you pay the premiums, the payments you receive are tax-free. Veterans\u2019 disability benefits and workers\u2019 compensation are also tax-free.<\/li>\n\n\n\n<li><strong>Gambling winnings<\/strong> \u2014 Gambling winnings are fully taxable and include:\n<ul class=\"wp-block-list\">\n<li>Lottery payouts<\/li>\n\n\n\n<li>Sweepstakes payouts<\/li>\n\n\n\n<li>Bingo winnings<\/li>\n\n\n\n<li>Raffle winnings<\/li>\n\n\n\n<li>Casino winnings<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Prizes<\/strong> \u2014 All prizes are taxable. If you win a prize, you must include the FMV of the prize in your income.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-tax-free-income\">Tax-free income<\/h2>\n\n\n\n<p>These are the most common sources of tax free income:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Auto rebates<\/strong> \u2014 A rebate is actually a reduction in price of the auto. It isn\u2019t taxable income. However, a rebate reduces your basis in the auto.<\/li>\n\n\n\n<li><strong>Alimony<\/strong> \u2014 For divorce or separation decrees executed <a href=\"https:\/\/www.hrblock.com\/tax-center\/irs\/tax-reform\/alimony-and-tax-reform\/\">after 2018, alimony<\/a> is not taxable to the recipient and is no longer deductible for the payer.<\/li>\n\n\n\n<li><strong>Carpool receipts<\/strong> \u2014 If you drive a carpool to and from work, you don\u2019t need to report payments you receive from passengers. These payments are considered reimbursement for your expenses, not income.<\/li>\n\n\n\n<li><strong>Child support payments<\/strong> \u2014Child support payments are tax-free to the recipient, and the payor can\u2019t deduct the payments.<\/li>\n\n\n\n<li><strong>Casualty insurance proceeds<\/strong> \u2014 If you\u2019re reimbursed for a loss, like a car accident or house fire, you usually don\u2019t have to report the income on your return. However, you should include the payment when you figure any gain or loss from the casualty or theft. Some of these payments might be taxable.<\/li>\n\n\n\n<li><strong>Combat pay<\/strong> \u2014 You qualify for tax-free income treatment for each month you were present in a combat zone and you\u2019re one of these members of the military:\n<ul class=\"wp-block-list\">\n<li>Enlisted member<\/li>\n\n\n\n<li>Warrant officer<\/li>\n\n\n\n<li>Commissioned warrant officer<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<p>If you\u2019re a commissioned officer who served in a combat zone or was hospitalized as a result of your service, the amount you can exclude is limited to the total of:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Highest rate of enlisted pay<\/li>\n\n\n\n<li>Imminent-danger pay<\/li>\n\n\n\n<li>Hostile-fire pay<\/li>\n<\/ul>\n\n\n\n<p>Commissioned warrant officers can exclude all military pay for each month present in a combat zone.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Damages<\/strong> \u2014 Some types of damages received from a legal settlement may qualify as <strong>tax-free income sources<\/strong>. This includes compensation you received for:\n<ul class=\"wp-block-list\">\n<li>Damages for a personal physical injury or sickness<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>Emotional distress suffered <em>as a result<\/em> of the personal physical injury or sickness.However, if you receive compensation a payment for these types of damages, the income is taxable:\n<ul class=\"wp-block-list\">\n<li>Lost wages or profits<\/li>\n\n\n\n<li>Punitive damages<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Dividends on a life insurance policy<\/strong> \u2014 Premiums are usually paid with after-tax dollars. So, dividends you receive are considered to be an overpayment of your premium. These are usually tax-free. If the dividends you receive are more than the premiums you paid, the excess amount is taxable.<\/li>\n\n\n\n<li><strong>Coverdell education savings accounts (ESAs)<\/strong> \u2014 Withdrawals from these accounts are tax-free if:\n<ul class=\"wp-block-list\">\n<li>You use the money to pay for qualified education expenses (Ex: tuition, books, and fees).<\/li>\n\n\n\n<li>The money is for the designated beneficiary enrolled at an eligible educational institution.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Gifts<\/strong> \u2014 Gifts are not taxed for income purposes. If federal gift tax is owed on the gift, the giver owes the tax. So, you don\u2019t usually need to report the receipt of gifts or pay gift or income tax. Learn more in our <a href=\"https:\/\/www.hrblock.com\/tax-center\/income\/other-income\/do-i-have-to-pay-taxes-on-a-gift\/\">what is gift tax<\/a> article.<\/li>\n\n\n\n<li><strong>Health and accident insurance plans and benefits<\/strong> \u2014 Generally, the value of employer-provided health plan coverage isn\u2019t included in income and is tax-free. If you\u2019re reimbursed for medical expenses you paid out of pocket, the money you receive isn\u2019t taxable. You also don\u2019t have to pay tax on compensation received for the:\n<ul class=\"wp-block-list\">\n<li>Permanent loss of the use of part of the body<\/li>\n\n\n\n<li>Permanent disfigurement<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Health savings accounts (HSA)<\/strong> \u2014 Contributions by you or your employer to an HSA are tax-free income if they\u2019re used to pay qualifying medical expenses. Nonqualified use of an HSA can result in taxable income.<\/li>\n\n\n\n<li><strong>Inheritances<\/strong> \u2014 Any money or property you inherit is tax-free unless the item is considered to be income in respect of a decedent (IRD). Items like retirement accounts are usually considered to be IRD. If you inherit a traditional IRA or company retirement benefits, you may have to include part of the inherited amount in your income. For inheritances, your basis is usually the property\u2019s FMV on the day the person who gave it to you died. You need to know the basis of the property so you can figure the amount of capital gain or loss you\u2019ll have when you dispose of the property.<\/li>\n\n\n\n<li><strong>Life insurance<\/strong> \u2014 Life insurance proceeds you\u2019re paid as beneficiary of an insured person aren\u2019t taxable. However, if you receive the proceeds in installments over a number of years, the interest earned on that account is taxable income. If you buy an annuity with life insurance proceeds, the annuity you receive will be taxed as a pension from a nonqualified plan, not as interest income.<\/li>\n\n\n\n<li><strong>Municipal bond interest<\/strong> \u2014 If you receive interest on bonds issued by state and local governments, the interest is usually tax-free. However, the interest is taxable income if both of these apply:\n<ul class=\"wp-block-list\">\n<li>You\u2019re subject to the Alternative Minimum Tax (AMT)<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Public safety officer survivor benefits<\/strong> \u2014 If you\u2019re a survivor of a public safety officer killed in the line of duty, you may be able to exclude certain survivor benefit income. Public safety officers include:\n<ul class=\"wp-block-list\">\n<li>Law enforcement officers<\/li>\n\n\n\n<li>Firefighters<\/li>\n\n\n\n<li>Chaplains<\/li>\n\n\n\n<li>Rescue squad members<\/li>\n\n\n\n<li>Ambulance crew members<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Profits on the sale of a home<\/strong> \u2014 If you sell your main home and lived in that home for at least two of the five years before you sold it, you might be able exclude up to $500,000 of profit from taxable income on a joint return. If you\u2019re single, the exclusion limit is $250,000.<\/li>\n\n\n\n<li><strong>Roth IRA withdrawals<\/strong> \u2014 Withdrawals up to your contribution amounts are always tax-free. Also, after you turn 59 1\/2, are disabled, or a beneficiary, or qualify for the \u201cfirst home\u201d exception all withdrawals you make \u2014 including earnings \u2014 are tax-free if the account has been open for at least five years.<\/li>\n\n\n\n<li><strong>Scholarships and fellowship grants<\/strong> \u2014 If you use scholarship or grant money for tuition and related expenses, the money is tax-free. This includes required expenses such as books, supplies and equipment. However, if you use any of the money to pay room and board, that portion is taxable income.<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Social Security payments<\/strong> \u2014 Depending upon your income and filing status, Social Security benefits may be entirely tax-free or partly taxable.&nbsp;<\/li>\n\n\n\n<li><strong>State and local tax refunds<\/strong> \u2014 You might have received a refund of your state or local income tax you claimed as an itemized deduction on your prior-year return. If so, usually a portion of your state or local income tax refund is taxable. However, even if you itemized, part of the refund could be tax-free.<\/li>\n\n\n\n<li><strong>Veterans\u2019 benefits<\/strong> \u2014 Veterans Affairs disability payments are tax-free.<\/li>\n\n\n\n<li><strong>Workers\u2019 compensation<\/strong> \u2014 If you receive workers\u2019 compensation for an injury you suffered on the job, that compensation is tax-free. However, you must receive the payment under a workers\u2019 compensation statute or a similar statute.<\/li>\n<\/ul>\n\n\n\n<p><strong>Where to go for more help with reporting tax-free and taxable income<\/strong><\/p>\n\n\n\n<p>Whether you want to file&nbsp; with <a href=\"https:\/\/www.hrblock.com\/online-tax-filing\/\">H&amp;R Block Online<\/a> or work with a trusted <a href=\"https:\/\/www.hrblock.com\/tax-offices\/?app_method=GENERAL_TAX_PREP_METHOD\">tax pro<\/a>, H&amp;R Block can help you navigate your taxes with confidence.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Most income is taxable. However, you might not have to pay tax on certain types of income. Income can come to you in the form of money, property, or services. Read on to gain insight into sources of taxable and nontaxable income. What types of income are subject to income tax? Most income you earn [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":38506,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":true,"footnotes":""},"categories":[24,50],"tags":[],"class_list":["post-20655","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-income","category-other-income"],"acf":[],"yoast_head":"<title>Tax Free and Taxable Sources Of Income | H&amp;R Block<\/title>\n<meta name=\"description\" content=\"Learn about the different sources of income and determine which ones are taxable and which are tax-free from the experts at H&amp;R Block.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.hrblock.com\/tax-center\/income\/other-income\/sources-of-income\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta 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