What is considered non-taxable income?

Non-taxable income refers to money that is not subject to federal income tax. Gifts received that meet specific limits are considered non-taxable income because, under Internal Revenue Service (IRS) guidelines, individuals can receive financial gifts without incurring a tax liability, as long as those gifts do not exceed the annual exclusion limit set by the IRS.

For example, in a given tax year, a person can receive gifts from a single donor up to the exclusion limit (which can change annually) without those gifts being subject to federal income tax. This principle is grounded in the idea that gifts are intended to enhance the recipient's financial situation without being treated as income.

On the other hand, income earned from employment, stock dividends, and revenue from business activities are generally classified as taxable income. Employment income is compensated for services rendered, stock dividends represent a return on investment, and business revenue comes from engaging in commercial activities. All these forms of income are subject to taxation, making gifts a unique category in terms of tax liability.