That can mean interest, penalties, and an unpleasant IRS audit. But here's a good start at cracking the tax code. Tutorial To understand how your income tax bill gets to be what it is, consider the following four underlying elements to federal taxation. An inheritance from a rich aunt, for example, is yours free of tax no matter how large. Also generally not taxed are scholarships, life insurance benefits, interest from bonds issued by states and cities, and child support payments from an ex-spouse.
Some items are only partly taxable.
Depending on your income, between 15 and 100 percent of Social Security retirement benefits may be tax free. But you do need to pay tax on some income that you might assume to be tax free. Uncle Sam often gives a break to married folks. That may apply to a divorced or widowed parent caring for a child, or a single taxpayer caring for an elderly parent. A head of household pays tax roughly in between the amount of the levy on a single and a couple.