Tax Preparation Help  
Pub. 525, Taxable and Nontaxable Income 2006 Tax Year

Publication 525 - Introductory Material

This is archived information that pertains only to the 2006 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

Hurricane relief provisions. The Katrina Emergency Tax Relief Act of 2005 and the Gulf Opportunity Zone Act of 2005 provide tax relief for persons affected by Hurricanes Katrina, Rita, and Wilma. Some of the provisions are covered in this publication. For information on other provisions, see Publication 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma.

Elective deferrals. The limit on the amount of your wages you can elect to defer into certain retirement plans (such as section 401(k) plans) increased. If you are age 50 or older, you may be able to make additional catch-up elective deferrals. See Elective Deferrals in the discussion on retirement plan contributions under Employee Compensation.

Employer-owned life insurance contract. . If you receive life insurance proceeds from an employer-owned life insurance contract on an employee, you may have to include some or all of the proceeds in income. See the discussion under Life Insurance Proceeds.

Designated Roth contributions. Employers with certain retirement plans can create a qualified Roth contribution program so that you may elect to have part or all of your elective deferrals to the plan designated as after-tax Roth contributions. See the discussion under Elective Deferrals.

Income exclusion for retired public safety officer. . For distributions in tax years beginning after 2006, a retired public safety officer can elect to exclude from income an eligible retirement plan distribution. The distribution must be from a governmental plan and must be transferred directly to pay the premiums for accident or health insurance or qualified long-term care insurance for the officer, his or her spouse, and dependents.

Terrorist attacks. You can exclude from income certain disaster assistance, disability, and death payments received as a result of a terrorist or military action. For more information, see Publication 3920, Tax Relief for Victims of Terrorist Attacks.

Astronauts.  You also can exclude death payments for astronauts dying in the line of duty after 2002.

Foreign income. If you are a U.S. citizen or resident alien, you must report income from sources outside the United States (foreign income) on your tax return unless it is exempt by U.S. law. This is true whether you reside inside or outside the United States and whether or not you receive a Form W-2, Wage and Tax Statement, or Form 1099 from the foreign payer. This applies to earned income (such as wages and tips) as well as unearned income (such as interest, dividends, capital gains, pensions, rents, and royalties). If you reside outside the United States, you may be able to exclude part or all of your foreign source earned income. For details, see Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.

Disaster mitigation payments. . You can exclude from income grants you use to mitigate (reduce the severity of) potential damage from future natural disasters that are paid to you through state and local governments. If you reported income from qualified disaster mitigation payments in previous years, you may be able to file a claim for refund. For more information, see Disaster mitigation payments under Welfare and Other Public Assistance Benefits.

Nonqualified deferred compensation plans. Generally, all amounts deferred under a nonqualified deferred compensation plan for all tax years are included in gross income for the current year, unless certain requirements are met. See Nonqualified deferred compensation plans, under Employee Compensation.

Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that otherwise would be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.

You can receive income in the form of money, property, or services. This publication discusses many kinds of income and explains whether they are taxable or nontaxable. It includes discussions on employee wages and fringe benefits, and income from bartering, partnerships, S corporations, and royalties. It also includes information on disability pensions, life insurance proceeds, and welfare and other public assistance benefits. Check the index for the location of a specific subject.

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.

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 otherwise could not get the funds before the end of the year, you include the amount in your income for the next tax 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 third 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, generally is 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.

Comments and suggestions.   We welcome your comments about this publication and your suggestions for future editions.

  You can write to us at the following address:


Internal Revenue Service
Individual Forms and Publications Branch
SE:W:CAR:MP:T:I
1111 Constitution Ave. NW, IR-6406
Washington, DC 20224

  We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.

  You can email us at *taxforms@irs.gov. (The asterisk must be included in the address.) Please put “Publications Comment” on the subject line. Although we cannot respond individually to each email, we do appreciate your feedback and will consider your comments as we revise our tax products.

Ordering forms and publications.   Visit www.irs.gov/formspubs to download forms and publications, call 1-800-829-3676, or write to the address below and receive a response within 10 business days after your request is received.


National Distribution Center
P.O. Box 8903
Bloomington, IL 61702-8903

Tax questions.   If you have a tax question, visit www.irs.gov or call 1-800-829-1040. We cannot answer tax questions sent to either of the above addresses.

Publication

  • 523 Selling Your Home

  • 527 Residential Rental Property (Including Rental of Vacation Homes)

  • 550 Investment Income and Expenses (Including Capital Gains and Losses)

  • 559 Survivors, Executors, and Administrators

  • 564 Mutual Fund Distributions

  • 575 Pension and Annuity Income

  • 915 Social Security and Equivalent Railroad Retirement Benefits

  • 970 Tax Benefits for Education

See How To Get Tax Help, near the end of this publication, for information about getting these publications.

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