What qualifies as taxable income?

Taxable income refers to income that is subject to taxation by the federal government. Wages, interest, and dividends consistently qualify as taxable income.

Wages are considered earned income and are directly subject to income tax withholding. Interest earned from savings accounts, bonds, or other financial instruments is typically taxable in the year it is received. Dividends, which are payments made to shareholders from a corporation's profits, are also included in taxable income, whether they are qualified or ordinary dividends.

In contrast, life insurance benefits, cash gifts, and health insurance premiums do not count as taxable income. Life insurance benefits, for example, are usually not taxable to the beneficiary when received upon the death of the insured. Cash gifts are also not taxed to the recipient, and while health insurance premiums may represent an expense, they do not count as taxable income either. Therefore, the only option that correctly identifies taxable income is wages, interest, and dividends.