Gross Income Exclusions and Inclusions

Contents

Introduction 401
Gifts and Inheritances 402
Life Insurance Proceeds 403
Endowment Policies 404
Gain on Surrender of Life Insurance Policies 405
Annuities – Introduction 406
General Rule 407
Employees’ Annuities 408
Special Simplified Rule for Certain Employee Annuities 408A
Interest Income – What Interest is Taxable 409
Interest on U.S. Obligations 410
New Exclusion for Savings Bond Interest 410A
Interest on State and Municipal Obligations 411
Interest-Free and Low Interest Loans 412
Exceptions 413
Dividend Income – What Dividends are Taxable 414
Stock Dividends 415
Return of Capital 416
Mutual Fund Dividends 417
Liquidating Dividends 418
Dividends on Insurance Policies 419
Disability Payments 420
Scholarships and Fellowships 421
Social Security Benefits 422
Welfare Benefits 423
Compensation for Damages – Accident and Health Insurance Reimbursement 424
Insurance Reimbursement for Extra Living Expenses 425
Unemployment Insurance Benefits 426
Income of U.S. Citizens from Sources Outside the U.S. 427
Conclusion 428