Total income, also sometimes referred to as gross income, is the broadest measure of income used for tax purposes. It is the total of all realized income recognized by the tax law. It is measured net of business expenses but before any other deductions or adjustments. It includes employee compensation such as wages, salaries, and tips; taxable interest and dividend income; business and farm income (net of expenses); realized capital gains; income from rents, royalties, trusts, estates, and partnerships; and taxable pensions and annuities.
Gross income does not include income explicitly excluded from tax. An exclusion is an item of income that is not included as income for tax purposes because the tax code explicitly excludes— or exempts—it from taxation.
Examples of items of income which are exempt from federal income taxation and, hence, excluded from gross income, are state and local bond interest income, public assistance (welfare), small gifts, employer contributions for health care, and employer-provided contributions to retirement plans. Social Security and Railroad Retirement income may or may not be excluded from income subject to tax.
The taxability of Social Security and Railroad Retirement depends on the amount of other income the taxpayer receives. Other forms of income excluded from taxation are a clergy member’s tax-free housing allowance, qualified foster care payments, and qualified scholarship and fellowship grants. Under certain conditions, a taxpayer can exclude a limited amount of disability pay such as workers’ compensation. Except for tax-exempt interest, exclusions generally are not required to be reported to the Internal Revenue Service.
Incomeauto1
Federal Individual Income Tax Terms: An Explanation Updated February 4, 2021