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What are Non-Taxable Earnings?


There are instances where income will not be taxed, whether or not you report it during tax season. Understanding which earnings are taxable versus non-taxable could save you a lot of time and trouble when you file your tax returns.

Non-taxable earnings

The following forms of income are non-taxable:

  • Most healthcare benefits
  • Scholarships and student loans
  • Welfare payments
  • Reimbursements
  • Child Support payments
  • Inheritance
  • Gifted money (unless of significantly high value)
  • Alimony
  • Cash rebates

In order for income to be considered non-taxable, it must be legally exempt.

Taxable vs Non-taxable Income

Some examples of taxable income would be employee wages, or constructively received income. Constructively received income is income that is available to you before the end of the tax year. This could be in the form of cash or deposit.

If an agent receives income on your behalf, this is called assignment of income. Assignment of income is still taxable, even if a third party is accepting your earnings.

Prepaid income is another taxable compensation that may include payment for future services.

Are royalties non-taxable income?

Copyrights, patents, and other properties such as oil and gas are examples of royalties. These items are taxable as income.

Are business and investment earnings non-taxable?

Business earnings such as rental properties and other investments are very much taxable. Business owners are required to pay taxes quarterly to cover Social Security and Medicare tax.

While non-profit agencies are tax exempt, you still have obligations to file a return.

What to do if you have a tax liability?

Taxable and non-taxable income can be a confusing topic. It’s best to ask a professional for assistance if you’re unsure about how or when to report income. Should you find yourself in the midst of a tax liability that is unaffordable, give Optima a call at (800) 536-0734 for a free consultation.

Student Loans and Taxes: What Current Students & Graduates Need to Know

student loans

Not all students are required to file taxes. However, there are instances where it may benefit you to report student loans.

Are students required to file taxes?

Your student loans do not count as income. Scholarships, fellowship money, and other resources given to you for school are not taxable. The taxable portion of the funds would be expenses such as travel, room and board, or optional expenses.

Tax Breaks for student loans

There are two types of credit that you may qualify for when you file: American Opportunity credit, or Lifetime Learning credit. Paying for education expenses is one of the qualifying factors in being eligible for education tax credit.

Qualifying costs include paying for books and tuition with a student loan. You can track your qualified expense payments through Form 1098-T, which is provided by your school. This form is simply a tuition statement.

Does filing jointly affect your student loans?

The short answer is, yes. Filing jointly can potentially increase or decrease your student loan payments. This is because repayment plans are income-driven, so they heavily rely on your filing status. The adjusted gross income in your tax return is used to calculate your payments.

Is there tax debt relief for students?

For complicated tax situations, it’s always best to work with a professional when you file. Selecting the wrong deductions or reporting your non-taxable income incorrectly can put you at risk for penalties. Over time, IRS penalties accrue interest, and a tax liability is the last thing you need to worry about on top of repaying education debt.

Optima assists clients with unmanageable tax debt find relief and remain compliant with the IRS. If you received a notice, give us a call for a free consultation at (800) 536-0734

Optima Newsletter – May: IRS Unclaimed Tax Refunds

News letter



IRS Unclaimed Tax Refunds The IRS announced that it has $1.5 billion in tax refunds from 2018 and gave taxpayers until the end of the season to claim their money. If you missed out on claiming your refund, there are steps you can take to make sure you claim other refunds from 2019 and on.

Where is My Tax Refund? The IRS backlog has caused delays in millions of tax refunds, but not all refunds are delayed due to the pandemic. Lead Tax Attorney Philip Hwang and CEO David King discuss how you can avoid refund delays when you file and how your refund may be affected by various circumstances.

What to do if You Missed the Tax Filing Deadline The end of tax season was officially April 18, 2022, which means the IRS is diving into enforcements and catching up on notices. What should you do, and what should you expect if you missed the filing deadline?

Payroll Taxes: What they are and how to file As a business owner, you have the responsibility of paying payroll taxes. It’s important to keep in mind the benefits of e-filing and to consider using this method for your payroll tax return.

Do You Qualify for IRS Penalty Relief?

Penalty abatements provide relief from IRS tax penalties. How do you know if you’re eligible? If you are looking to resolve your tax burden with the IRS, you may qualify for a penalty abatement. Optima CEO David King and Lead Tax Attorney Philip Hwang discuss the two most common circumstances that would qualify you for penalty relief.