If you are the recipient of benefit payments from a public welfare fund, you do not have to include them in your income. In addition, any payments from a state fund that you received as a victim of a crime should not be included in income. However, if you paid medical expenses that were reimbursed by a victim’s fund, you are not entitled to a deduction for those expenses.
An exception to the exclusion of welfare payments from taxation exists for those benefits that were fraudulently obtained. They must be fully included in income.
Other Public Assistance Benefits
Alaska Residents. The State of Alaska occasionally makes payments to its citizens based on certain age and residency requirements. These payments are not based on need and are, therefore, not excludable welfare payments.
Persons with Disabilities. If you are disabled and receive goods, services, and cash for your training and rehabilitation, you do not include the value of those items in income. Excludable amounts include reimbursements for transportation and attendant care, such as interpreter services for the deaf, reader services for the blind, and services to help mentally disabled taxpayers do their work. However, if you receive compensation for services you perform, that compensation is taxable unless otherwise excluded from income.
Disaster Relief Grants. Any grants you receive under the Disaster Relief and Emergency Assistance Act to help you meet necessary expenses or serious needs for medical, dental, housing, personal property, transportation, or funeral expenses are not considered taxable income. But any unemployment assistance payments received under the Act are taxable.
Disaster Relief Payments. You do not have to include qualified disaster relief payments in income to the extent that any expenses they pay for were not paid for by insurance. A qualified disaster results from a terroristic or military action, is a presidentially-declared disaster, or results from an accident involving a common carrier or other event which is determined to be catastrophic by the federal government.
A qualified disaster relief payment meets the following requirements: it is paid to reimburse or to pay reasonable and necessary expenses arising from a qualified disaster; it reimburses or pays for expenses to repair or rehabilitate your home or its contents after a disaster; it is paid by a person working as a common carrier because of the death or personal physical injuries resulting from a disaster; or it is paid by a governmental entity or agency in connection with a disaster in order to promote the public welfare.
Mortgage Assistance Payments. If you receive payments for mortgage assistance through the National Housing Act, you do not have to include them in income. However, you are not entitled to deduct any interest paid for you under the mortgage assistance program.
Payments to Reduce the Cost of Winter Energy. State payments made to qualified individuals to reduce winter heating costs are excluded from income.
Nutrition Program for the Elderly. This program provides food benefits for qualified individuals. The value of the food received is not income to the recipients.
Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.