taxable income

What Is Taxable Income (With Examples)?

taxable income

Taxable income is the amount of money, in earned income and unearned income, that creates a potential tax liability.

Earned taxable income is any income you receive for work and for other services provided. Any wages, tips, and fees you receive is deemed by the IRS as «earned income.»

What, exactly, is unearned income?

What is Unearned Income?

Unearned income is money you get without actually directly working for it. The term actually covers a great deal of ground and includes the following categories:

  • Unemployment benefits and other federal and state financial benefits.
  • Canceled debts.
  • Lottery winnings.
  • Profits earned by assets sold ( a car or an asset sold for a profit on eBay or any online sales site.)
  • Alimony payments and child support.
  • Social Security and Medicare benefits paid by your employer.
  • Severance pay.
  • Rental income from personal property.
  • Capital gains and losses when investing.
  • Stock dividends.
  • Bonuses and rewards ( trips paid for by your employer.)

Nontaxable Income

While taxable income covers the amount of money, in gross income terms, owed to the government, the IRS does consider some forms of income to be nontaxable.

It's worth noting, though, that most forms of non-taxable income, while not taxable, still need to be listed on your income tax return.

Here are some examples of non-taxable income:

  • Cash gifts and inheritances.
  • Cash rebates from retailers and businesses.
  • Welfare income.
  • Damages from a physical injury, illness or disability.
  • Child support payments.
  • Hotel and restaurant ( meals) services incurred when on the job.

There's yet another category of income that may or may not be considered taxable by the IRS (for example, the income may be granted as an exclusion by the IRS). It's a good idea to talk with a professional accountant to see if any of the following potential sources of income are tax exempt:

Deductions and Taxable Income

Uncle Sam provides a substantial break on taxable income in the form of the standard deduction on U.S. individual and spousal tax forms. It offers more tax breaks in the form of itemized deductions, which require you to record all expenses incurred that you wish to use on your tax returns.

Standard Deduction

Basically, taxpayers can claim either the standard deduction when filing taxes, or they can itemize their qualifying individual deductions.

The standard deduction cuts your taxable income by a specific amount ($12,200 for the 2019 tax year for single filers, $18,350 for heads of household and $24,200 for married couples filing jointly). Itemized deductions are comprised of individual deductions potential eligible expenses.

It's up to the taxpayer to decide which deduction to claim, so it's important to know which deduction lowers your tax burden most.

It's also worth noting that the new tax bill, passed in December 2017, changes the standard deduction levels.

Starting in 2018, the standard deduction changed to:

  • $24,000 for married filing jointly or surviving spouse.
  • $18,000 for head of household.
  • $12,000 for married filing separate or any single filer.

And since then, the standard deduction has increased incrementally each year and continues to do so; while the standard deduction for single filers is $12,200 for the 2019 tax year, it will be $12,400 for the 2020 tax year.

For Americans 65-and-over get a big tax break, too. In addition to getting the standard deduction, individual tax filers who are 65-or-over can claim an additional $1,650 deduction on their taxes, and married filers over 65 can claim an extra $2,600 ($1,300 if married, filing jointly when only one spouse is 65 or older).

In general, the standard deduction is preferable if you don't have a long list of itemized deductions; it keeps you from having to record expenses, hang on to receipts and keep a ledger on itemized expenses.

Itemized Deductions

Another way to slash your taxable income is by using itemized deductions.

The savings can really add up in doing so. If you're a taxpayer in the 15% tax bracket, every $1,000 listed as itemized deductions on your tax return saved you $150, according to H&R Block. So $5,000 in itemized deductions can save you $750 off your tax bill.

All itemized deductions for individual and married taxpayers should be included on IRS Tax Form 1040, in Schedule A. Itemized tax deductions are not allowed on IRS Tax Form 1040A or 1040EZ — only the standard deduction can be taken on those forms.

Itemized deductions cover a wide array of expenses incurred over the course of a year that would otherwise be deemed as taxable by the IRS. Typical itemized deductions include:

  • Mortgage interest;
  • Health care expenses;
  • Property taxes;
  • Charitable expenses;
  • Investment interest expense;
  • Tax preparation fees;
  • State and local taxes.

If your list of itemized deductions adds up to more in tax savings than your standard deduction, then itemizing is the way to go. Just be sure to save receipts and record your expenses on a regular basis, and store them safely in the event the IRS asks about an itemized deduction.

The formula for figuring out your estimated itemized deductions is easy — list your expenses and count them up. Then, subtract your total deductions from your taxable income to calculate your itemized deductions.

How to Calculate Taxable Income

There's no hard and fast formula for calculating taxable income, as your total taxable income depends on your tax deductions, filing status and the standard deduction. Just know that your goal going in is to take the maximum amount of deductions possible to lower your tax bill.

Once you have your calculator in place, take these steps to calculate your taxable income:

  • Figure out your total taxable income for the year, including both earned and unearned income.
  • Calculate your adjusted gross income. Your adjusted gross income is your gross annual income, with any adjustments (or above the line tax deductions) subtracted.
  • Subtract any standard or itemized tax deductions from your adjusted gross income.
  • Subtract any tax exemptions you are entitled to, a dependent exemption.
  • Once you've subtracted any tax form adjustments, deductions, and exemptions from your gross income, you've arrived at your taxable income figure.

Источник: https://www.thestreet.com/personal-finance/what-is-taxable-income-14691999

Taxable Income — Definition, Types, and How to Compute

taxable income

Taxable income refers to any individual’s or business’ compensation that is used to determine tax liability.

The total income amount or gross income is used as the basis to calculate how much the individual or organizationTypes of OrganizationsThis article on the different types of organizations explores the various categories that organizational structures can fall into. Organizational structures owes the government for the specific tax period.

One important thing to remember about taxable income is that it includes not just one’s salaryRemunerationRemuneration is any type of compensation or payment that an individual or employee receives as payment for their services or the work that they do for an organization or company. It includes whatever base salary an employee receives, along with other types of payment that accrue during the course of their work, which but also compensation in other forms, such as tips, bonuses, allowances, commissions, and capital gains.

Types of Taxable Income

Every taxpayer knows that failure to file a report for one’s income tax can lead to serious consequences. So, to be sure about paying taxes, here’s a list of the types of income:

1. Employee compensation and benefits

These are the most common types of taxable income and include wages and salaries, as well as fringe benefits.

2. Investment and business income

For people who are self-employed, they are also subject to tax liability, specifically through their business’ income. For example, net rental income and partnership income qualify as taxable income.

3. Miscellaneous taxable income

This includes income that doesn’t fit into the other types. It includes things such as death benefits, life insuranceCommercial Insurance BrokerA commercial insurance broker is an individual tasked with acting as an intermediary between insurance providers and customers.

The existence of commercial insurance brokers goes a long way in preventing customers from getting lost in the sea of trustworthy and unscrupulous insurance providers., and canceled debts.

Alimony, items involved in barter trading, and income from one’s hobby are also miscellaneous taxable income.

Taxable vs. Non-Taxable Income

Taxable income includes all types of compensation, whether they are in the form of cash or services, as well as property. Unless a particular income is expressly exempted by law from tax liability, every income is taxable and should be reported in the income tax return. Examples include:

  • Salary
  • Wages
  • Interest received from banks
  • Stock optionsEmployee Stock Ownership Plan (ESOP)An Employee Stock Ownership Plan (ESOP) refers to an employee benefit plan that gives the employees an ownership stake in the company. The employer allocates a percentage of the company’s shares to each eligible employee at no upfront cost. The distribution of shares may be the employee’s pay scale, terms of
  • Dividends
  • Unemployment compensation
  • Notes received
  • Rents from personal property

Non-taxable income, on the other hand, refers to income that is received but that is not subject to taxation. However, even if such forms of compensation cannot be taxed, they still need to be reflected in the tax return. Examples of non-taxable income are:

  • Gifts
  • Inheritance
  • Cash rebates from items bought
  • Child support payments
  • Welfare benefits
  • Meals and lodging

How to Compute Taxable Income

Every tax season drives workers to calculate their income to determine how much tax they are supposed to pay. Though some people can do it by themselves, many seek the help of accountants. Below are simple steps to try to determine one’s adjusted gross income, which is the amount one’s tax liability is calculated on.

  1. Determine total income. Individuals should put together all compensation received.
  2. Compute unearned income. Unearned income refers to income that is obtained without having to work for compensation, such as dividends, alimony, unemployment compensation, and real estate income.
  3. Choose filing status. There are four filing statuses: single, married filing jointly, married filing separately, and head of household.
  4. Reduce the income. Form 1040 contains a list of common deductions from gross income.
  5. Compute for adjusted gross income. After summing up all the deductions in the previous step, that figure will be deducted from the total, or gross, income to come up with the “adjusted gross income.” This is the amount of income upon which tax is actually levied.

Additional Resources

CFI is the official provider of the global Financial Modeling & Valuation Analyst (FMVA)™FMVA® CertificationJoin 350,600+ students who work for companies Amazon, J.P. Morgan, and Ferrari certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional CFI resources below will be useful:

  • Accounting for Income TaxesAccounting For Income TaxesIncome taxes and its accounting is a key area of corporate finance. Having a conceptual understanding of accounting for income taxes enables
  • How to Use the IRS.gov WebsiteHow to Use the IRS.gov WebsiteIRS.gov is the official website of the Internal Revenue Service (IRS), the United States’ tax collection agency. The website is used by businesses and
  • Progressive TaxProgressive TaxA progressive tax is a tax rate that increases as the taxable value goes up. It is usually segmented into tax brackets that progress to successively higher rates. For example, a progressive tax rate may move from 0% to 45%, from the lowest and highest brackets
  • Tax ShieldTax ShieldA Tax Shield is an allowable deduction from taxable income that results in a reduction of taxes owed. The value of these shields depends on the effective tax rate for the corporation or individual. Common expenses that are deductible include depreciation, amortization, mortgage payments and interest expense

Источник: https://corporatefinanceinstitute.com/resources/knowledge/finance/taxable-income/

Taxable Income Formula | Calculator (Examples with Excel Template)

taxable income

Taxable Income Formula (Table of Contents)

  • Formula
  • Examples
  • Calculator

What is Taxable Income Formula?

This article will talk about the Taxable Income Formula and Here we learn the calculation of Taxable Income along with the various important Examples.

Taxable Income is the amount of income which is liable to tax. It means how much income of an individual or company owes to the government in the current tax year. Gross Income or Adjusted Gross Income or Net Income is the income an individual gets from the employer before any deductions or taxes.

Post deduction is the net income. In India, a person’s income that crosses the maximum amount limit is collected as Income tax the rate set by the Indian income tax department. It is the Individual Resident Status of the taxpayer too. Indian Income does always have a tax liability.

Foreign Income also comes under tax liability for Residents but not for non-residents. Income can be divided into two categories. 1. Earned Income 2. Unearned Income. Earned Income includes Salaries, Provident fund contribution, fees, pension, gratuity, tips, bonus, etc.

Unearned Income includes rents, alimony, interests, royalties, dividends, etc. Simply we can divide the Income below.

  • a) From Salary
  • b) From Fixed Assets properties.
  • c) From Business or Profession
  • d) From Share Markets or investment Gains
  • e) From Other Resources, if any

Now the Gross Income is additional of all the above whatever is applicable.

Gross Total Income = a+b+c+d+e

Income tax can be calculated using the simple formula. It is purely the income tax slabs it falls under.

Formula For Taxable Income is represented as,

Total Taxable Income = Gross Total Income – Deductions / Exemptions allowed from income

Let’s take an example to understand the calculation of Taxable Income in a better manner.

Taxable Income Formula – Example #1

Reena has income from Salary, Business, and Property. She gets the Total Income salary of Rs.3L post all possible deductions/ exemptions. And Income from a fashion boutique is Rs.50000 after all exemptions. And Property Rent of Rs.60000. She invested in 80c for 15000. Hence claimed for 80 C.

Solution:

Gross Total Income is calculated as:

  • Gross Total Income = 300000+50000+60000 – 15000
  • Gross Total Income = 395000

Total Taxable Income is calculated using the formula given below

Total Taxable Income = Gross Total Income – Deductions / Exemptions allowed from Income

  • Total Taxable Income = 395000 – 0
  • Total Taxable Income = 395000

Taxable Income Formula – Example #2

The income tax calculation for the Salaried

Income From salary is the summation of Basic Salary, House Rent Allowance, Special Allowance, Transport Allowance, Other If any. Some Parts of salary are tax exempted such as phone bills, Leave travel allowance. In addition to this, the Standard deduction of 50000 is there in the Budget 2019.

Veera lives in Bangalore and gets a basic Salary of Rs.600000 a month. HRA of Rs.300000 and Transport Allowances of Rs.10000 and medical allowances of Rs.5600. Telephone Bills Rs.20000 Annually. Veera pays Rent of Rs.20000. Below is the calculation of how the taxable income from salary is calculated.

Taxable income is calculated as

Similarly, we call for other values

Gross Total Income is calculated as:

  • Gross Total Income = 600000 + 10000 + 5600 + 120000 – 50000 + 8000
  • Gross Total Income = 693600

Veera has income from interest from the savings account of Rs.6500 during the year. Neha has invested under 80C to save some tax Edelweiss Tokio Life Insurance premium of Rs.8000. Medical insurance paid of Rs.14000. Veera Can claim the following Deductions.

Income from Other Sources:

Veera has income from other sources of Rs.40000 annually.

Total Taxable Income is calculated using the formula given below

Total Taxable Income = Gross Total Income – Deductions / Exemptions allowed from Income

  • Total Taxable Income = 693600 + 40000 – (15000 + 14000 + 6500)
  • Total Taxable Income = 733600 – 35500
  • Total Taxable Income = 698100

Explanation

Here is the step by step approach for calculating Taxable Income.

Step 1:Gross Income- Gross Income is the income amount an individual gets from the employer or a company gets before any deductions or taxes. So it will be an additional of all income which a person/company would have possibly got through a) salary or b)property or c) business or d) capital gains or e) other resources.

Gross Total Income = a+b+c+d+e

Step 2: Deductions or Exemptions-The exemption or Deductions value has to be deducted from the gross income. There are certain allowances which are fully taxable or partly taxable or fully exempted taxable allowances.

Fully taxable – Some of the fully Taxable allowances are Overtime Allowance, Servant Allowance, and Dearness Allowance.

Partly Taxable – Examples for Partly Taxable are House Rent Allowance, Travel Allowance, Uniform Allowance, and Children Education Allowances.

Fully Exempted Taxable – Some of the Fully Exempted Allowances are Allowances of High Court & Supreme court Judges, Foreign Allowances. the Category a particular allowance falls under, it is deducted from the gross income.

Step 3:Net Income or Taxable Income: Income amount which is deducted from the suitable allowances is Net Income.

Step 4: After finding the net income, under which Income range slabs, the amount comes, the Taxes are calculated. One can refer to the above income tax slab table for this.

Total Taxable Income or Net Income = Gross Total Income – Deductions / Exemptions allowed from Income

Relevance and Uses of Taxable Income Formula

Mainly The Taxable Income is used to find the tax we have to pay to Government as an individual or Company.

The taxes are mainly used for raising the revenue of the government and other purposes as well. So it is mainly for Public Finance.

When the overall monetary is the status of a country is compared with other countries, the revenue is considered. Taxes of its citizens hold the main place in it.

Taxable Income Formula Calculator

You can use the following Taxable Income Formula Calculator

Total taxable Income =Gross Total Income – Deductions
=0 – 0
=0

This is a guide to Taxable Income Formula. Here we discuss how to calculate Taxable Income along with the practical examples. We also provide a Taxable Income calculator with a downloadable excel template. You may also look at the following articles to learn more –

Источник: https://www.educba.com/taxable-income-formula/

What is Taxable and Nontaxable Income?

taxable income

You can receive income in the form of money, property, or services. This section discusses many kinds of income that are taxable or nontaxable.

It includes discussions on employee wages and fringe benefits, and income from bartering, partnerships, S corporations, and royalties. The information on this page should not be construed as all-inclusive.

Other steps may be appropriate for your specific type of business.

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. A list is available in Publication 525, Taxable and Nontaxable Income.

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 year. 

Assignment of income.  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 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. 

Employee Compensation

Generally, you must include in gross income everything you receive in payment for personal services. In addition to wages, salaries, commissions, fees, and tips, this includes other forms of compensation such as fringe benefits and stock options. 

You should receive a Form W-2, Wage and Tax Statement, from your employer showing the pay you received for your services. 

Childcare providers.  If you provide child care, either in the child's home or in your home or other place of business, the pay you receive must be included in your income.

  If you are not an employee, you are probably self-employed and must include payments for your services on Schedule C (Form 1040 or 1040-SR), Profit or Loss From Business.

 You generally are not an employee unless you are subject to the will and control of the person who employs you as to what you are to do and how you are to do it. 

Babysitting.  If you babysit for relatives or neighborhood children, whether on a regular basis or only periodically, the rules for childcare providers apply to you.

Fringe Benefits

Fringe benefits you receive in connection with the performance of your services are included in your income as compensation unless you pay fair market value for them or they are specifically excluded by law.  Abstaining from the performance of services (for example, under a covenant not to compete) is treated as the performance of services for purposes of these rules. 

Recipient of fringe benefit.  You are the recipient of a fringe benefit if you perform the services for which the fringe benefit is provided.

  You are considered to be the recipient even if it is given to another person, such as a member of your family.  An example is a car your employer gives to your spouse for services you perform.

  The car is considered to have been provided to you and not your spouse. 

You do not have to be an employee of the provider to be a recipient of a fringe benefit. If you are a partner, director, or independent contractor, you can also be the recipient of a fringe benefit. 

Business and Investment Income

Rents from personal property. If you rent out personal property, such as equipment or vehicles, how you report your income and expenses is generally determined by:

  • Whether or not the rental activity is a business, and
  • Whether or not the rental activity is conducted for profit.

Generally, if your primary purpose is income or profit and you are involved in the rental activity with continuity and regularity, your rental activity is a business.  See Publication 535, Business Expenses, for details on deducting expenses for both business and not-for-profit activities.

Partnership Income

A partnership generally is not a taxable entity. The income, gains, losses, deductions, and credits of a partnership are passed through to the partners each partner's distributive share of these items. For more information, refer to Publication 541.

Partner's distributive share.  Your distributive share of partnership income, gains, losses, deductions, or credits generally is the partnership agreement.

You must report your distributive share of these items on your return whether or not they actually are distributed to you.

However, your distributive share of the partnership losses is limited to the adjusted basis of your partnership interest at the end of the partnership year in which the losses took place.

Partnership return. Although a partnership generally pays no tax, it must file an information return on Form 1065, U.S. Return of Partnership Income. This shows the result of the partnership's operations for its tax year and the items that must be passed through to the partners.

S Corporation Income

In general, an S corporation does not pay tax on its income.

Instead, the income, losses, deductions, and credits of the corporation are passed through to the shareholders each shareholder's pro rata share.

You must report your share of these items on your return. Generally, the items passed through to you will increase or decrease the basis of your S corporation stock as appropriate.

S corporation return. An S corporation must file a return on Form 1120S, U.S. Income Tax Return for an S Corporation.

This shows the results of the corporation's operations for its tax year and the items of income, losses, deductions, or credits that affect the shareholders' individual income tax returns.

For additional information, see the Instructions for Form 1120S PDF.

Royalties

Royalties from copyrights, patents, and oil, gas and mineral properties are taxable as ordinary income. 

You generally report royalties in Part I of Schedule E (Form 1040 or Form 1040-SR), Supplemental Income and Loss.  However, if you hold an operating oil, gas, or mineral interest or are in business as a self-employed writer, inventor, artist, etc., report your income and expenses on Schedule C.

For additional information, refer to Publication 525, Taxable and Nontaxable Income.

Virtual Currencies

The sale or other exchange of virtual currencies, or the use of virtual currencies to pay for goods or services, or holding virtual currencies as an investment, generally has tax consequences that could result in tax liability. This guidance applies to individuals and businesses that use virtual currencies.

Bartering 

Bartering is the exchange of goods or services. Usually there's no exchange of cash. An example of bartering is a plumber exchanging plumbing services for the dental services of a dentist.

Bartering doesn't include arrangements that provide solely for the informal exchange of similar services on a noncommercial basis (for example, a babysitting cooperative run by neighborhood parents).

You must include in your income, at the time received, the fair market value of property or services you receive in bartering. For additional information, refer to Tax Topic 420 — Bartering Income.

Источник: https://www.irs.gov/businesses/small-businesses-self-employed/what-is-taxable-and-nontaxable-income

Taxable and non-taxable income

taxable income

  • Non-taxable income
  • Taxable income
  • Tax allowances and tax reliefs

It is important to know what income is non-taxable and can be ignored for tax purposes.

You only pay tax on your taxable income so you do not want to include any non-taxable income in your calculations.

You do not have to tell HM Revenue and Customs (HMRC) about income which is non-taxable so you leave it off tax returns and any other forms HMRC sends you asking about your taxable income. When you are working out your taxable income you also need to know about tax allowances and tax reliefs.

The following types of income are non-taxable.

Welfare benefits

The following benefits are non-taxable, so you can ignore them for tax purposes:

  • Attendance Allowance
  • Lump sum bereavement payments
  • Bereavement Support Payment
  • Best Start Grant
  • Child Benefit. While Child Benefit is not taxable, if your household receives it and someone in your household has taxable income of over £50,000, they may have to pay extra tax from 7 January 2013. Find out more about the extra tax charge on GOV.UK.
  • child dependency additions paid with Carer’s Allowance, Incapacity Benefit, State Retirement Pension and Widowed Parent’s Allowance
  • Child Tax Credit
  • Child Winter Heating Assistance
  • Christmas bonus for pensioners
  • Cold Weather Payments
  • Council Tax Reduction
  • Disability Living Allowance
  • Employment and Support Allowance (Income-related)
  • Funeral Support Payment
  • Guardian’s Allowance
  • Health costs, including eye tests, prescriptions, travel under the Hospital Travel Costs Scheme
  • Housing Benefit
  • Income Support, unless you are on strike when you claim
  • Industrial Injuries benefits including Disablement Benefit, Reduced Earnings Allowance, Constant Attendance Allowance and Exceptionally Severe Disablement Allowance
  • Job Start Payment
  • Maternity Allowance
  • One-parent Benefit, only available if your claim was made before April 1997
  • Pension Credit
  • Personal Independence Payment
  • Return to Work Credit
  • Severe Disablement Allowance, only available to claimants who were claiming before April 2001
  • Social Fund payments including budgeting loans, funeral expenses payments and Sure Start Maternity grants
  • Universal Credit
  • War Disablement Pension, including allowances
  • War Widow’s/Widower's pension
  • Winter Fuel Payments
  • Young Carer Grant.

Interest and income from savings and investments

Interest from the following types of savings and investments is non-taxable, so you can ignore it for tax purposes:

  • Child Trust Fund
  • National Savings and Investment (NS&I) Certificates
  • Individual Savings Accounts (ISAs)
  • Tax Reserve Certificates
  • withdrawals from insurance policies or investment bonds of up to 5% of the amount originally invested.

Other income which is non-taxable

Other types of income which are non-taxable and can be ignored for tax purposes include:

  • adoption allowances paid by a local authority or approved adoption agency
  • Child Tax Credit
  • childcare vouchers up to a value of £55 a week
  • work-related training courses
  • educational grants and student loans, including the parental contribution and scholarships
  • Education Maintenance Allowance (there are separate allowances for England, Wales, Scotland and Northern Ireland)
  • eye tests, prescription charges and help with other health costs
  • fares to school
  • Higher Education Student Support grant (there are separate grants for England, Wales, Scotland and Northern Ireland)
  • HM forces – mess and ration allowances
  • foster care receipts below specified limits
  • bravery awards – annuities and additional pensions paid to holders of the Victoria Cross, George Cross and most other bravery medals are non-taxable
  • holocaust victims – compensation
  • home improvement grants from your Local Authority
  • hospital patients’ travelling expenses under the Hospital Travel Scheme
  • housing grants from your Local Authority
  • compensation or damages awarded for personal injuries whether received in one lump sum or over a period and whether awarded by a court or court settlement
  • interest up to the time of judgment awarded by a court on compensation or damages for personal injuries
  • jurors’ financial loss allowance, if the juror is an employee
  • life assurance policies – certain bonuses and profits
  • long service awards to employees after 20 years of service, where the gift does not exceed £50 for each year of service and where the gift is tangible, for example a clock or shares in a company. A cash award is usually taxable unless it is a one-off payment which is not included in your contract of employment
  • maintenance payments received from a spouse or civil partner
  • miners’ free coal or cash in lieu of coal
  • certain pensions. Voluntary pensions which are not connected to a past job and to which you contribute annually are tax-free. Disability pensions of members of the armed forces are tax-free. Any pension awarded to you as an employee on retirement because of an injury at work is tax-free
  • German and Austrian annuities and pensions for victims of Nazi persecution
  • lump sum pension payments (maximum 25% of the capital value up to a certain limit
  • compensation and interest for mis-sold personal pensions taken out between 29 April 1988 and 30 June 1994 inclusive
  • insurance benefits paid to you if you are sick, disabled or unemployed to meet your financial commitments, for example, benefits paid under mortgage protection insurance, permanent health insurance, payment protection (creditor) insurance and long-term care insurance
  • strike pay and unemployment pay from trade unions
  • premium bond prizes, winnings from the National Lottery and football pools, and from betting for example, horse racing
  • property income — the first £1,000 of income from renting out part of your property is tax-free, for example renting a parking space on your drive (this is separate to the Rent a Room scheme)
  • purchased annuities – capital element of the amount you receive
  • the first £30,000 of payments which are compensation for loss of a job, including statutory and contractual redundancy payments 

If you have received a payment for loss of a job and are not sure whether it should be paid tax-free, you should consult an experienced adviser, for example, at a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by e-mail, click on nearest CAB

  • Rent a Room scheme – the first £7,500 of the income is tax-free
  • repayment supplement in connection with interest paid on repayment of overpaid tax
  • trading — the first £1,000 of income from trading or selling a skill is tax-free, for example selling products you have made or providing a lift share
  • Thalidomide Trust payments to victims of thalidomide
  • TV licence payment for the over 75s
  • vaccine damage lump sum payments
  • Scottish Government energy efficiency schemes, Warm Front Grant (England), Warm Homes (Northern Ireland), Energy Companies Obligation (ECO) (England, Wales and Scotland)
  • Working Tax Credit.

Some social security benefits and pensions

The following social security benefits and pensions are taxable:

  • Bereavement Allowance
  • Carer's Allowance
  • Employment and Support Allowance – contributory and youth
  • Incapacity Benefit – except for the first 28 weeks (higher rate) and those who were receiving the former Invalidity Benefit at 12 April 1995 for the same incapacity (long term)
  • Income Support paid to people who are on strike
  • industrial death benefit pensions
  • Jobseeker’s Allowance – both contribution-based and income-based up to a taxable maximum
  • State Pension
  • Widowed Mother’s Allowance
  • Widowed Parent's Allowance
  • Widow’s Pension.

Additions for dependent children paid with any of the above benefits are not taxable. An addition for a spouse or civil partner is taxable.

The following earned income is taxable:

  • bonuses
  • commission
  • expenses paid by your employer when those expenses are not totally and necessarily incurred in doing your job including travelling expenses between your home and your place of work, and expenses incurred for the care of a member of your family, such as child minding costs
  • certain foreign earnings
  • payments in lieu of wages, such as payments made by a liquidator when your company has been wound up and employees are owed earnings
  • permitted work, as part of a treatment programme under medical supervision
  • profits from self-employment
  • protective awards which may be ordered by an industrial tribunal if your employer has not given a trade union the statutory notice of redundancies or a payment which may be made to you as an ex-employee from the redundancy funds if your employer goes into liquidation
  • redundancy or leaving payments over £30,000
  • retainers. For example a payment made to you for a period when you do not carry out any actual work, such as payment made to you as an employee of the school meals service during school holidays
  • Statutory Adoption Pay
  • Statutory Maternity Pay
  • Statutory Paternity Pay
  • Statutory Sick Pay
  • tips
  • non-cash vouchers that are liable for Class 1 National Insurance Contributions
  • wages and salaries including backdated pay awards.

Occupational pension paid by a former employer

An occupational pension paid to you, as an employee by your former employer, counts as your income and is generally taxable. There are some circumstances when the income is not taxable, for example:

  • if you have retired early following an accident at work, work-related illness or war injuries, the excess pension paid to you above the normal early retirement pension is not taxable
  • if you work outside the UK as an employee, and so do not pay UK tax.

The law on tax and occupational pensions is complicated and an experienced adviser should be consulted for further details. For example, you can contact The Pensions Advisory Service (TPAS), which provides free, confidential advice on occupational pensions.

For more information about TPAS, see Further help and information in Workplace pensions.

The rules on pension lump sums are complicated and an experienced adviser should be consulted for details, for example, a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.

Interest on savings

You don't normally have to pay tax on interest from savings. You'll only pay tax if you get more than a certain amount of interest in a year. This amount is called your 'personal savings allowance'. Your personal savings allowance depends on your income for the year, including the interest on your savings:

You can find out how much your personal savings allowance is on GOV.UK.

You pay income tax on savings at your usual rate. For example, if you pay 20% income tax on your wages, you'll also pay 20% on any interest over your personal savings allowance.

You need to pay income tax on any interest that's above your personal savings allowance.

For example, if your personal savings allowance is £1,000 and you get £1,200 of interest, £1,000 is tax-free and you pay income tax on £200. 

Your personal savings allowance includes interest from:

  • bank and building society accounts
  • credit unions
  • National Savings and Investments
  • government and company bonds
  • life annuities
  • unit trusts, open-ended investment companies and investment trusts  

Interest on savings counts as taxable income on the date it's credited to your account. It isn't apportioned over the period when it builds up.

Other types of income which are taxable

The following other types of income are taxable:

  • taxable gains on life insurance policies
  • income from trusts and settlements
  • profits from the sale of some goods and property
  • profits from renting part of a property, property letting including second homes and from furnished holiday lettings. Rental income from lodgers up to a certain limit is entitled to tax relief under the Rent a Room scheme
  • profits on motor mileage allowances paid to volunteer drivers, for example, drivers for the hospital car service or other volunteer organisations
  • purchased annuities – the income element of the amount you receive.

For more information about taxable income, you should consult an experienced adviser, for example, at a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.

Personal allowances

In addition to having income that is not taxable at all, there are tax-free allowances that you take off your taxable income to reduce the amount on which you have to pay tax.

This is because nearly all taxpayers living in the UK on a day to day basis are entitled to personal tax allowances which are deducted from their taxable income.

These allowances give taxpayers a certain amount of taxable income on which they pay no tax.

For more information about personal allowances, see Income tax allowances and amounts.

Tax reliefs

Some taxpayers may be able to claim reliefs against income tax as well as allowances. Reliefs against income tax are amounts that are allowed against your tax bill because you have had to make certain outgoings, commonly in connection with your work. You can use the reliefs to reduce the amount of your taxable income so that you have less tax to pay.

For more information about tax reliefs, see Tax reliefs.

Источник: https://www.citizensadvice.org.uk/debt-and-money/tax/what-is-taxable-income/taxable-and-non-taxable-income/

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