Publication 525: Taxable and Nontaxable Income; Publication 525 Introductory Material

This is archived information that pertains only to the 2003 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

Adoption assistance. Beginning in 2003, if the adoption of a child with special needs becomes final during the year, the maximum exclusion for certain amounts paid or reimbursed by your employer for qualifying adoption expenses under an adoption assistance program will be allowed regardless of whether you have qualifying expenses. See Adoption Assistance under Fringe Benefits.

Elective deferrals. The limit on the amount of your wages you can elect to defer into certain retirement plans (such as section 401(k) plans) increases each year through 2006. If you are age 50 or older, you may be able to make additional catch-up elective deferrals. See Elective Deferrals in the discussion on retirement plan contributions under Employee Compensation.

Retirement planning services. If your employer has a qualified retirement plan, qualified retirement planning services provided for you (or your spouse) by your employer are not included in your income. For more information, see Retirement Planning Services under Fringe Benefits.

Employer-provided educational assistance. You can exclude from your income up to $5,250 of employer-provided educational assistance. This benefit includes graduate-level as well as undergraduate-level courses. For more information, see chapter 11 in Publication 970, Tax Benefits for Education.

Qualified tuition program (QTP). A distribution from a QTP established and maintained by a state (or an agency or instrumentality of the state) can be excluded from your income if the amount distributed is used for qualified higher education expenses. You can make contributions to a QTP established and maintained by one or more eligible educational institutions. However, earnings on the account will be taxable if withdrawn before January 1, 2004. For more information on QTPs, see chapter 8 in Publication 970.

Terrorist attacks. You can exclude from income certain disaster assistance, disability, and death payments received as a result of a terrorist or military action. For more information, see Publication 3920, Tax Relief for Victims of Terrorist Attacks. Astronauts. Recent legislation extended the exclusion for death payments to astronauts dying in the line of duty after 2002. See Publication 553, Highlights of 2003 Tax Changes.

Payments received by Holocaust victims. You can exclude from income certain payments received as restitution to a Holocaust victim (or an heir of a Holocaust victim). For more information, see Holocaust victims restitution under Other Income, later.

Foreign income. If you are a U.S. citizen or resident alien, you must report income from sources outside the United States (foreign income) on your tax return unless it is exempt by U.S. law. This is true whether you reside inside or outside the United States and whether or not you receive a Form W–2, Wage and Tax Statement, or Form 1099 from the foreign payer. This applies to earned income (such as wages and tips) as well as unearned income (such as interest, dividends, capital gains, pensions, rents, and royalties). If you reside outside the United States, you may be able to exclude part or all of your foreign source earned income. For details, see Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.

Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1–800–THE–LOST (1–800–843–5678) if you recognize a child.

You can receive income in the form of money, property, or services. This publication discusses many kinds of income and explains whether they are taxable or nontaxable. It includes discussions on employee wages and fringe benefits, and income from bartering, partnerships, S corporations, and royalties. It also includes information on disability pensions, life insurance proceeds, and welfare and other public assistance benefits. Check the index for the location of a specific subject.

Generally, an amount included in your income is taxable unless it is specifically exempted by law. Income that is taxable must be reported on your return and is subject to tax. Income that is nontaxable may have to be shown on your tax return but is not taxable.

Constructively-received income. You are generally taxed on income that is available to you, regardless of whether it is actually in your possession.

A valid check that you received or that was made available to you before the end of the tax year is considered income constructively received in that year, even if you do not cash the check or deposit it to your account until the next year. For example, if the postal service tries to deliver a check to you on the last day of the tax year but you are not at home to receive it, you must include the amount in your income for that tax year. If the check was mailed so that it could not possibly reach you until after the end of the tax year, and you could not otherwise get the funds before the end of the year, you include the amount in your income for the next tax year.

Income received by an agent for you is income you constructively received in the year the agent received it. If you agree by contract that a third party is to receive income for you, you must include the amount in your income when the third party receives it.

Example.

You and your employer agree that part of your salary is to be paid directly to your former spouse. You must include that amount in your income when your former spouse receives it.

Prepaid income. Prepaid income, such as compensation for future services, is generally included in your income in the year you receive it. However, if you use an accrual method of accounting, you can defer prepaid income you receive for services to be performed before the end of the next tax year. In this case, you include the payment in your income as you earn it by performing the services.

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Publication

523 Selling Your Home
527 Residential Rental Property (Including Rental of Vacation Homes)
550 Investment Income and Expenses (Including Capital Gains and Losses)
559 Survivors, Executors, and Administrators
564 Mutual Fund Distributions
575 Pension and Annuity Income
915 Social Security and Equivalent Railroad Retirement Benefits
970 Tax Benefits for Education

See How To Get Tax Help, near the end of this publication, for information about getting these publications.

Publication 525Introductory Material

Publication 525
Introductory Material