If you get a raise at work, one of your first thoughts may be to wonder how it will affect your taxes. It is a fact of life in Missouri and across the country that income gets taxed, and the more you make, the more taxes you pay. When tax time comes, you likely grab your calculator and start adding up every stream of your income, then figure out how much you owe the government.
What you may not realize is that not every dime you receive may be taxable. While it is true that the money you earn each week at your job likely comes with a tax, you may be receiving funds that you do not have to claim on your forms for the IRS.
An overview of non-taxable income
The IRS wants its share of money you earn — or don’t earn, for that matter. For example, in addition to the tax you pay on your weekly salary from your job, you must also pay the government taxes on your lottery winnings, interest on your investments and income from any freelance work you do, among others. However, there are numerous sources of income for which you are not liable to pay taxes under most circumstances, including:
- Benefits from disability insurance if you are paying the premiums
- Workers’ compensation benefits
- The value of a tangible gift your employer presents to you for purposes not related to your job performance
- Many VA benefits and combat pay
- Benefits you receive from someone’s life insurance policy, excluding any interest the policy funds earn, which are taxable
- Child support payments, which are technically income for your child
- Cash gifts, although for any money that produces income, such as bonds or a retirement account, that income would be taxable
- Inheritances that do not earn interest
- Personal injury awards, although any punitive damages or awards for lost wages are taxable
- Supplemental security income, welfare or other needs-based income
Social security retirement benefits are different from SSI, and you may pay a tax on these. In fact, this long list is hardly comprehensive, and each of these items may also have certain exclusions and exceptions. If you received money or assets in addition to your income from your job during the year, it is best to seek the advice of an attorney when preparing your taxes. Missing taxable income or failing to include it on your returns can result in penalties from the IRS.