Most taxpayers who meet the Internal Revenue Service (IRS) filing requirements are required to file a tax return on or before the April 15 deadline. However, there are certain types of income that are not subject to income tax. This income is considered non-taxable and does not figure into your requirement to file a return.
Taxable vs. Non-taxable Income
Non-taxable incomes are those categories of income that are generally not required to be included on an income tax return. Government payments from a public welfare assistance fund are generally not considered taxable income and should not be included on your return.
Examples of welfare payments include monthly payments made to taxpayers, as well as payments made as part of a work training program. The only instance in which you would claim payments from a work training program on your taxes is if the payments you received as part of the program exceeded what you would have received otherwise. In such a case, you would claim the excess amount on your income tax return.
You are only required to file a return if you met the requirements for filing in addition to receiving welfare benefits. For example, if you worked part of the year, are single, earned $10,000, then became unemployed and began receiving welfare benefits (not unemployment, as those benefits are taxable), then you are required to file a return because you met the requirement to file. Why? For 2012, the filing requirement for single taxpayers was $9,750. Include only the amount you earned from work on your return, not your welfare benefits.
Just as you are not required to include welfare benefits on your return, you are also not allowed to claim medical deductions on your return costs that were reimbursed by a public welfare fund. This is considered "double dipping" by the IRS and could be cause for your return to be audited.
Even if you are not required to file an income tax return, you may want to file if you had federal withholding from your paycheck or if you qualify for a refundable credit. For example, if your income was mostly from welfare benefits during the year but you did earn some income that was subject to withholding, then you qualify to have the federal tax that was withheld refunded to you. Also, some refundable credits, such as the Earned Income Credit, allow you to qualify for a refund even if you earned little income.