<P> The value of goods or services received is included in income in barter transactions . </P> <P> The courts have given very broad meaning to the phrase "all income from whatever source derived," interpreting it to include all income unless a specific exclusion applies . Certain types of income are specifically excluded from gross income . These may be referred to as exempt income, exclusions, or tax exemptions . Among the more common excluded items are the following: </P> <Ul> <Li> Tax exempt interest . For Federal income tax, interest on state and municipal bonds is excluded from gross income . Some states provide an exemption from state income tax for certain bond interest . </Li> <Li> Some Social Security benefits . The amount exempt has varied by year . The exemption is phased out for individuals with gross income above certain amounts . </Li> <Li> Gifts and inheritances . However, a "gift" from an employer to an employee is considered compensation, and is generally included in gross income . </Li> <Li> Life insurance proceeds received by reason of the death of the insured person . </Li> <Li> Certain compensation for personal physical injury or physical sickness, including: <Ul> <Li> Amounts received under worker's compensation acts for personal physical injuries or physical sickness, </Li> <Li> Amounts received as damages (other than punitive damages) in a suit or settlement for personal physical injuries or physical sickness, </Li> <Li> Amounts received through insurance for personal physical injuries or physical sickness, and </Li> <Li> Amounts received as a pension, annuity, or similar allowance for personal physical injuries or physical sickness resulting from active service in the armed forces . </Li> </Ul> </Li> <Li> Scholarships . Amounts in the nature of compensation, such as for teaching, are included in gross income . </Li> <Li> Certain employee benefits . Non-taxable benefits include group health insurance, group life insurance for policies up to $50,000, and certain fringe benefits, including those under a flexible spending or cafeteria plan . </Li> <Li> Certain elective deferrals of salary (contributions to "401 (k)" plans). </Li> <Li> Meals and lodging provided to employees on employer premises for the convenience of the employer . </Li> <Li> Foreign earned income exclusion for U.S. citizens or residents for income earned outside the U.S. when the individual met qualifying tests . </Li> <Li> Income from discharge of indebtedness for insolvent taxpayers or in certain other cases . </Li> <Li> Contributions to capital received by a corporation . </Li> <Li> Gain up to $250,000 ($500,000 on a married joint tax return) on the sale of a personal residence . </Li> </Ul> <Li> Tax exempt interest . For Federal income tax, interest on state and municipal bonds is excluded from gross income . Some states provide an exemption from state income tax for certain bond interest . </Li>

Gross income includes all income from whatever source derived