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Publication 525 - Introductory Material

Future Developments

For the latest information about developments related to Publication 525, such as legislation enacted after it was published, go to

What's New

Olympic and Paralympic medals and United States Olympic Committee (USOC) prize money. . If you receive Olympic and Paralympic medals and USOC prize money, the value of the medals and the amount of the prize money may be non-taxable. See the instructions for line 21, Form 1040, at for more information.

Health flexible spending arrangements (health FSAs) under cafeteria plans. For tax years beginning in 2016, the dollar limitation under section 125(i) on voluntary employee salary reductions for contributions to health flexible spending arrangements is $2,550.


Achieving a Better Life Experience (ABLE) account. This is a new type of savings account for individuals with disabilities and their families. Distributions are tax-free if used to pay the beneficiary's qualified disability expenses. See Pub. 907 for more information.

Public safety officers. A spouse, former spouse, and child of a public safety officer killed in the line of duty can exclude from gross income survivor benefits received from a governmental section 401(a) plan attributable to the officer's service. See section 101(h).A public safety officer that's permanently and totally disabled or killed in the line of duty and a surviving spouse or child can exclude from income death or disability benefits received from the federal Bureau of Justice Assistance or death benefits paid by a state program. See section 104(a)(6).

Certain amounts received by wrongfully incarcerated individuals. Certain amounts you receive due to a wrongful incarceration may be excluded from gross income. See for more information.

Qualified Medicaid waiver payments. Certain payments you receive for providing care to an eligible individual in your home under a state's Medicaid waiver program, aren’t included in your income. These payments may be excluded from your income whether or not you are related to the eligible individual receiving care.

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 Sickness and Injury Benefits , later, and Pub. 3920, Tax Relief for Victims of Terrorist Attacks.

Qualified settlement income. . If you are a qualified taxpayer, you can contribute all or part of your qualified settlement income, up to $100,000, to an eligible retirement plan, including an IRA. Contributions to eligible retirement plans, other than a Roth IRA or a designated Roth contribution, reduce the qualified settlement income that you must include in income. See Exxon Valdez settlement income under Other Income, later. Also, see Pub 590-A for more information on contributions to retirement plans.

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 Pub. 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.

Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing & 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.

In most cases, 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 isn’t 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 don’t 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 aren’t 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 couldn’t possibly reach you until after the end of the tax year, and you otherwise couldn’t 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.


You and your employer agree that part of your salary is to be paid directly to one of your creditors. You must include that amount in your income when your creditor receives it.

Prepaid income.   In most cases, prepaid income, such as compensation for future services, 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 send us comments from Click on “More Information” and then on “Give us feedback.

  Or you can write to:

Internal Revenue Service 
Tax Forms and Publications 
1111 Constitution Ave. NW, IR-6526 
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.

  Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products.

Ordering forms and publications.    Visit to download forms and publications. Otherwise, you can go to to order current and prior-year forms and instructions. Your order should arrive within 10 business days.

Tax questions.   If you have a tax question not answered by this publication, check and How To Get Tax Help at the end of this publication.

Useful Items - You may want to see:


  • 334 Tax Guide for Small Business

  • 523 Selling Your Home

  • 527 Residential Rental Property

  • 541 Partnerships

  • 544 Sales and Other Dispositions of Assets

  • 550 Investment Income and Expenses

  • 554 Tax Guide for Seniors

  • 559 Survivors, Executors, and Administrators

  • 575 Pension and Annuity Income

  • 907 Tax Highlights for Persons with Disabilities

  • 915 Social Security and Equivalent Railroad Retirement Benefits

  • 970 Tax Benefits for Education

  • 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments

Form (and Instructions)

  • 1040 U.S. Individual Income Tax Return

  • 1040A U.S. Individual Income Tax Return

  • 1040EZ Income Tax Return for Single and Joint Filers With No Dependents

  • 1040NR U.S. Nonresident Alien Income Tax Return

  • 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

  • W-2 Wage and Tax Statement

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

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