If you are a taxpayer who receives cash assistance from the government through programs, such as Welfare or from qualified social welfare organizations, you generally do not need to include those payments as income on your federal tax return. However, you may still need to file a return if you received taxable income from other sources during the tax year.
Cash Assistance Payments
Cash assistance payments are generally given to individuals and families who demonstrate extreme financial need. Local and state governments often make cash assistance payments to very low-income families in their areas. Social welfare organizations may also provide assistance during times of hardship and natural disaster. Both the Welfare program and the Temporary Assistance for Needy Families Program (TANF) offer cash assistance to qualifying individuals.
Tax Rules for Cash Assistance Payments
According to the Internal Revenue Service, cash assistance programs are generally not a form of taxable income. If you receive these payments, you should not include them in your gross income on a federal income tax return. An exception is made for welfare assistance that is provided as a form of compensation for work. This assistance is taxable and should be included as gross income.
Impact on Federal Tax Return
Since most forms of cash assistance are not recognized as taxable income, they usually have no effect on a tax return. Taxpayers who receive most cash assistance payments do not qualify for special tax credits nor are they required to pay additional income tax on their assistance. If you received welfare payments in exchange for work, you should report this assistance as part of your gross income.
Filing a Return
If your cash assistance payments were your only source of income during the year, you may not be required to file a tax return. However, if you received income from other sources such as wages, retirement distributions or self-employment earnings, you should file a federal tax return and simply omit or include the cash assistance payments as necessary.
Individuals and families who receive cash assistance may or may not meet the Internal Revenue Service's reporting requirements. Although you may not need to list your government benefits on your taxes, you will need to file a tax return if your other income reaches the limit set by the IRS. That means single individuals who make above $10,400, married couples filing jointly who bring home $20,800, married couples filing separately with an income total of $4,050, head of household filers with an income of 13,400 and widowers who earn $16,750 must file a tax return at the end of the year.