You generally should not report the following items on your return. However, some of the items are only partly excluded from your income. A discussion of other totally and partly excluded items follows this list.

• Accident and health insurance proceeds.
• "Black lung" benefits.
• Casualty insurance and other reimbursements (chapter 27).
• Child support payments (chapter 20).
• Compensatory damages awarded for physical injury or physical sickness.
• Federal Employees' Compensation Act payments.
• Government cost-of-living allowances for civilian employees stationed outside the continental U.S. (or in Alaska)(chapter 6).
• Housing allowance for members of the clergy (chapter 6).
• Interest on state or local government obligations (chapter 8).
• Meals and lodging provided by employer.
• Military allowances (get Publication 3).
• Moving expense reimbursements (chapter 19).
• Scholarship and fellowship grants (get Publication 520).
• Supplemental security income (SSI).
• Veterans' benefits (chapter 6).
• Welfare benefits.
• Workers' compensation.

Campaign contributions. These contributions are not income to a candidate unless they are diverted to his or her personal use. To be exempt from tax, the contributions must be spent for campaign purposes or kept in a fund for use in future campaigns. However, interest earned on bank deposits, dividends received on contributed securities, and net gains on sales of contributed securities are taxable and must be reported on Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations. Excess campaign funds transferred to an office account must be included in the officeholder's income on line 21 of Form 1040, in the year transferred.

Cash rebates.
A cash rebate you receive from a dealer or manufacturer of an item you buy is not income.

Example.
You buy a new car for $9,000 cash and receive a $400 rebate check from the manufacturer. The $400 is not income to you. Your cost is $8,600. This is your basis on which you figure gain or loss if you sell the car, and depreciation if you use it for business.

Energy conservation subsidies.
You can exclude from gross income any subsidy provided, either directly or indirectly, by public utilities for the purchase or installation of an energy conservation measure for a dwelling unit.

Energy conservation measure.
This includes installations or modifications that are primarily designed to reduce consumption of electricity or natural gas, or improve the management of energy demand.

Dwelling unit.
This includes a house, apartment, condominium, mobile home, boat, or similar property. If a building or structure contains both dwelling and other units, any subsidy must be properly allocated.

Foster-care providers.
Payments you receive from a state, political subdivision, or tax-exempt child-placement agency for providing care to qualified foster individuals in your home generally are not included in your income. You must include in your income payments received for the care of more than 5 individuals age 19 or older and certain difficulty-of-care payments.

A qualified foster individual is a person who:

1. Is living in a foster family home, and
2. Was placed there by:
   1. An agency of a state or one of its political subdivisions, or
   2. If the individual is under age 19, a tax-exempt child placement agency licensed by a state or one of its political subdivisions.

Difficulty-of-care payments.
These are additional payments that are designated by the payer as compensation for providing the additional care that is required for physically, mentally, or emotionally handicapped qualified foster individuals. A state must determine that the additional compensation is needed, and the care for which the payments are made must be provided in your home.

You must include in your income difficulty-of-care payments received for more than:

1. 10 qualified foster individuals under age 19, or
2. 5 qualified foster individuals age 19 or older.

Maintaining space in home.
If you are paid to maintain space in your home for emergency foster-care, you must include the payment in your income.

Reporting taxable payments.
If you receive payments that you must include in your income, you are in business as a foster-care provider and you are self-employed. Report the payments on Schedule C or Schedule C-EZ (Form 1040). Get Publication 587, Business Use of Your Home, to help you determine the amount you can deduct for the use of your home.

Gifts and inheritances.
Generally, property you receive as a gift, bequest, or inheritance is not included in your income. However, if property you receive this way later produces income such as interest, dividends, or rents, that income is taxable to you. If property is given to a trust and the income from it is paid, credited, or distributed to you, that also is income to you. If the gift, bequest, or inheritance is the income from the property, that income is taxable to you.

Inherited pension or IRA.
If you inherited a pension or an individual retirement arrangement (IRA), you may have to include part of the inherited amount in your income. See chapter 11 if you inherited a pension. See chapter 18 if you inherited an IRA.

Interest on frozen deposits.
In general, you exclude from your income the amount of interest earned on a frozen deposit. See Interest income on frozen deposits in chapter 8.

Interest on qualified savings bonds.
You may be able to exclude from your income the interest from qualified U.S. savings bonds you redeem if you pay qualified higher educational expenses in the same year. For more information on this exclusion, see Education Savings Bond Program under U.S. Savings Bonds in chapter 8.

Interview expenses.
If a prospective employer asks you to appear for an interview and either pays you an allowance or reimburses you for your transportation and other travel expenses, the amount you receive is generally not taxable. You include in income only the amount you receive that is more than your actual expenses.

Living expenses paid by insurance.
Do not include in your income amounts you receive under an insurance policy for additional living expenses you and your family had because you lost the use of your home due to a fire, storm, or other casualty. The amount you can exclude is limited to your actual expenses to keep the same standard of living your family had before the casualty, minus the normal living expenses you would have had.

Sale of home.
You may be able to exclude from income all or part of any gain from the sale or exchange of your main home. See chapter 16.

Transporting school children.
Do not include in your income a school board mileage allowance for taking children to and from school if you are not in the business of taking children to school. You cannot deduct expenses for providing this transportation.

Utility rebates.
If you are a customer of an electric utility company and you participate in the utility's energy conservation program, you may receive on your monthly electric bill either:

1. A reduction in the purchase price of electricity furnished to you (rate reduction), or
2. A nonrefundable credit against the purchase price of the electricity.

The amount of the rate reduction or nonrefundable credit is not included in your income.

Life Insurance Proceeds

Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price. This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract.

Proceeds not received in installments.
If death benefits are paid to you in a lump sum or other than at regular intervals, include in your gross income only the benefits that are more than the amount payable to you at the time of the insured person's death. If the benefit payable at death is not specified, you include in your income the benefit payments that are more than the present value of the payments at the time of death.

Proceeds received in installments.
If you receive life insurance proceeds in installments, you can exclude part of each installment from your income.

To determine the excluded part, divide the amount held by the insurance company (generally the total lump sum payable at the death of the insured person) by the number of installments to be paid. Include anything over this excluded part in your income as interest.

Surviving spouse.
If your spouse died before October 23, 1986, and insurance proceeds paid to you because of the death of your spouse are received in installments, you can exclude up to $1,000 a year of the interest included in the installments. If you remarry, you can continue to take the exclusion.

More information.
For more information, see Life Insurance Proceeds in Publication 525.

Surrender of policy for cash.
If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. In general, your cost (or investment in the contract) is the total premiums that you paid for the life insurance policy, less any refunded premiums, rebates, dividends, or unrepaid loans that were not included in your income. This is explained more fully in Publication 575.

You should receive a Form 1099-R showing the total proceeds and the taxable part. Report these amounts on lines 16a and 16b of Form 1040, or lines 11a and 11b of Form 1040A.

Endowment proceeds.
Endowment proceeds paid in a lump sum to you at maturity are taxable only if the proceeds are more than the cost of the policy. To determine your cost, see Endowment proceeds in Publication 525.

Deceased public safety officers.
If you are a survivor of a public safety officer who died in the line of duty, you may be able to exclude from income certain amounts you receive.

Bureau of Justice Assistance payments.
If you are a surviving dependent of a public safety officer (law enforcement officer or firefighter) who died in the line of duty, do not include in your income the death benefit paid to you by the Bureau of Justice Assistance.

Governmental plan annuity.
If you receive a survivor annuity as the child (or former spouse) of a public safety officer who was killed in the line of duty after 1996, you generally do not have to include it in income. The annuity is excluded to the extent it is based on the officer's service as a public safety officer.

For this purpose, the term public safety officer includes police and law enforcement officers, firefighters, rescue squads or ambulance crews. See Publication 525 for more information.

Accelerated Death Benefits

Certain payments received under a life insurance contract on the life of a terminally or chronically ill individual before the individual's death (an accelerated death benefit) can be excluded from income. See Exception, later. For a chronically ill individual, the payments must be for costs incurred for qualified long-term care services or made on a periodic basis without regard to the costs.

In addition, if any portion of a death benefit under a life insurance contract on the life of a terminally or chronically ill individual is sold or assigned to a viatical settlement provider, the amount received is also excluded from income. Generally, a viatical settlement provider is one who regularly engages in the business of buying or taking assignment of life insurance contracts on the lives of insured individuals who are terminally or chronically ill.

To claim an exclusion for accelerated death benefits made on a per diem basis, you must file Form 8853, Medical Savings Accounts and Long-term Care Insurance Contracts, with your return.

Terminally or chronically ill defined.
A terminally ill person is one who has been certified by a physician as having an illness or physical condition that can reasonably be expected to result in death within 24 months from the date of the certification. A chronically ill person is one who is not terminally ill but has been certified by a licensed health care practitioner as meeting either of the following conditions.

1. The person is unable to perform (without substantial help) at least two activities of daily living for a period of 90 days or more because of a loss of functional capacity.
2. The person requires substantial supervision to protect himself or herself from threats to health and safety due to severe cognitive impairment.

Exception.
The exclusion does not apply to any amount paid to a person other than the insured if that other person has an insurable interest in the life of the insured:

• Because the insured is a director, officer, or employee of the other person, or
• Because the insured has a financial interest in the business of the other person.

Limit on exclusion.
The amount of accelerated death benefits you may exclude may be limited if:

1. They are paid on account of chronic illness, and
2. They are received as periodic payments.

For 1999, the most you can exclude is $190 per day ($69,350 a year).

There is no limit on amounts paid on account of the exclusion for terminal illness.

Long-Term Care Insurance Contracts

Long-term care insurance contracts are generally treated as accident and health insurance contracts. Amounts you receive from them (other than policyholder dividends or premium refunds) generally are excludable from income as amounts received for personal injury or sickness.

To claim an exclusion for payments made on a per diem or other periodic basis under a long-term care insurance contract, you must file Form 8853 with your return.

A long-term care insurance contract is any insurance contract that only provides coverage of qualified long-term care services. The contract:

1. Must be guaranteed renewable,
2. Must not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed,
3. Must provide that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract may be used only to reduce future premiums or increase future benefits, and
4. Generally must not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer or the contract makes per diem or other periodic payments without regard to expenses.

Qualified long-term care services.
Qualified long-term care services are:

1. Necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and
2. Maintenance or personal care services required by a chronically ill individual as prescribed by a licensed health care practitioner.

Chronically ill individual.
A chronically ill individual is one who has been certified as one of the following.

1. An individual who, for at least 90 days, is unable to perform at least two activities of daily living without substantial assistance due to loss of functional capacity. Activities of daily living are eating, toileting, transferring, bathing, dressing, and continence.
2. An individual who requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment.

The certification must have been made by a licensed health care practitioner within the previous 12 months.

Limit on exclusion.
You can generally exclude from gross income up to $190 a day ($69,350 a year) for 1999. The $190 is indexed for inflation.

Medical Savings Accounts (MSAs)

Do not include in income amounts you withdraw from your MSA if you use the money to pay for qualified medical expenses for you, your spouse, or your dependents. Generally, qualified medical expenses are those you can deduct on Schedule A (Form 1040), Itemized Deductions. You must have paid these expenses yourself. For more information about qualified medical expenses, see Publication 502, Medical and Dental Expenses. For more information about MSAs, see Publication 969.

You cannot buy health insurance with distributions from your MSA unless you are receiving unemployment benefits, buying continuation coverage required by federal law, or buying long-term care insurance.

Taxable distributions and penalty.
If you use the money from your MSA for any purpose besides qualified medical expenses, it will be taxable income that you must report on your tax return. In addition to the tax, you will be charged a 15 percent penalty for an early distribution. The penalty will not be charged if you are disabled or age 65.

Welfare and Other Public Assistance Benefits

Do not include in your income benefit payments from a public welfare fund, such as payments due to blindness. Payments from a state fund for the victims of crime should not be included in the victims' incomes if they are in the nature of welfare payments. Do not deduct medical expenses that are reimbursed by such a fund. You must include in your income any welfare benefits obtained fraudulently.

Alaska residents.
Payments the state of Alaska makes to its citizens who meet certain age and residency tests that are not based on need are not welfare benefits. Include them in gross income on line 21 of Form 1040.

Persons with disabilities.
If you have a disability, you must include in income compensation you receive for services you perform unless the compensation is otherwise excluded. However, you do not include in income the value of goods, services, and cash that you receive, not in return for your services, but for your training and rehabilitation because you have a disability. Excludable amounts include payments for transportation and attendant care, such as interpreter services for the deaf, reader services for the blind, and services to help mentally retarded persons do their work.

Disaster relief grants.
Grants made under the Disaster Relief Act of 1974 to help victims of natural disasters are not included in income. Do not deduct casualty losses or medical expenses that are specifically reimbursed by these disaster relief grants. Disaster unemployment assistance payments under the Act are unemployment benefits that are taxable. See Unemployment compensation in chapter 6.

Mortgage assistance payments.
Payments made under section 235 of the National Housing Act for mortgage assistance are not included in the homeowner's gross income. Interest paid for the homeowner under the mortgage assistance program cannot be deducted.

Payments to reduce cost of winter energy.
Payments made by a state to qualified people to reduce their cost of winter energy use are not taxable.

Scholarship and Fellowship Grants

If you receive a scholarship or fellowship grant, you may be able to exclude from income all or part of the amounts you receive.

Scholarships and fellowships.
A candidate for a degree can exclude amounts received as a qualified scholarship or fellowship. A qualified scholarship or fellowship is any amount you receive that is for:

1. Tuition and fees to enroll at or attend an educational organization, or
2. Fees, books, supplies, and equipment required for courses at the educational institution.

Amounts used for room and board do not qualify. Get Publication 520 for more information on qualified scholarships and fellowship grants.

Payments for services.
Payments you receive for services required as a condition of receiving a scholarship or fellowship grant must be included in your income, even if the services are required of all candidates for the degree. This includes amounts received for teaching and research. Include these payments on line 7 of Form 1040 or Form 1040A, or on line 1 of Form 1040EZ.

For information about the exclusion for a qualified tuition reduction provided to employees and their families by an educational institution, see Publication 520.

VA payments.
Allowances paid by the Department of Veterans Affairs are not included in your gross income. These allowances are not considered scholarship or fellowship grants.

Prizes.
Scholarship prizes won in a contest are not scholarships or fellowships if you do not have to use the prizes for educational purposes. You must include these amounts in your gross income on line 21 of Form 1040, whether or not you use the amounts for educational purposes.

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