Welfare and Income Taxes
According to the IRS, governmental benefit payments received from a public welfare fund that gives funds based upon need such as to low income individuals, the blind or disabled, are not taxable income. In other words, people who receive cash aid or benefits from programs like Supplemental Security Income, Temporary Assistance for Needy Families and food stamps do not have to pay tax on those payments or benefits.
Taxable Welfare Income
Welfare income may be taxable in certain special circumstances. The IRS says that a person who receives welfare income as compensation for services rendered must include that income on a tax return. In addition, welfare income obtained fraudulently is considered taxable income.
Individuals who live in areas affected by natural disasters or that are affected by terrorist or military action may receive government compensation in the form of disaster relief grants or payments. The IRS says that disaster relief grants and payments that a person uses to pay for necessary expenses or needs such as medical, dental, housing, personal property, transportation or funeral expenses are not included in taxable income.
Other Non-Taxable Income
Several other government programs that provide income or benefits to individuals are exempt from taxation. Here are some benefits the IRS lists as exempt from taxation: Medicare benefits received under title XVIII of the Social Security Act; Home Affordable Modification Program payments; food benefits from the Nutrition Program for the Elderly; and payment made by state programs to help people reduce the cost of winter energy use.