Exclusion of Certain Salaries, Wages and Fees from Taxable Income in the United States

Income can be received in the form of money, property, or services. This article explores the different kinds of income that are taxable or nontaxable, providing insights into specific scenarios involving salaries, wages, and fees that are not subject to federal income tax in the United States.

Overview of Taxable and Nontaxable Income

Generally, any amount included in your income is taxable unless it is specifically exempted by law. However, not all income is subject to taxation; some types are entirely nontaxable, or they may need to be reported but not taxed. This article will explore specific examples of such income as detailed in the Internal Revenue Service (IRS) Publishing 525 Taxable and Nontaxable Income.

Adoption Assistance

Employees may be eligible to exclude from their taxable income amounts paid or expenses incurred by their employer for qualified adoption expenses related to the adoption of an eligible child. This includes adoption taxes, court costs, legal fees, and other allowable expenses.

Employee Benefits from Athletic Facilities

There are several employee benefits provided by employers that may not be included in your taxable income. For instance, if your employer provides you with the free or low-cost use of an employer-operated gym or athletic club at their premises, the value of this service is typically excluded from your compensation. The key condition is that the facility must be used primarily by employees, their spouses, and dependent children.

De Minimis Benefits

Employers often provide various small benefits to their employees which are not included in the taxable income due to their minimal cost. These include, but are not limited to:

Small discounts at company cafeterias or discounts on goods that do not significantly contribute to the cost of goods sold. Cab fares or taxi rides. Home use of an employer’s equipment when at least 85% of its usage is for business purposes. Occasional personal use of an employer’s copying machine where the majority of uses are for business purposes. Company picnics or other social functions.

Holiday Gifts

Holiday gifts from employers such as turkeys, hams, or other items of nominal value are typically not included in an employee's income. If, however, the employer gives a gift certificate, cash, or a similar item that can be easily exchanged for cash, the value of this gift must be included in the employee's income. This value is often reported as extra salary or wages.

The exclusion and inclusion of specific benefits and payments in income are subject to the tax code and may vary based on the circumstances. It is always a good idea to consult the Publishing 525 Taxable and Nontaxable Income or consult with a tax professional to ensure accurate reporting and compliance with federal and state tax laws.

Conclusion

Understanding what types of salaries, wages, and fees are not considered taxable income in the United States is crucial for accurate tax reporting and compliance. By familiarizing yourself with exemptions and inclusions, you can ensure that your income is reported correctly, avoiding potential tax penalties. For detailed guidance, refer to the Publishing 525 Taxable and Nontaxable Income from the IRS.