P1-U04 · PART 1 · SOURCE CYCLE 2026-2027
Taxable and Nontaxable Income
How to complete this unit
This unit uses 16 source-gated recall cards and 11 admissible practice questions. Complete the sequence in order; the unreleased wiki prose remains outside the learner path.
- 1 · LearnBuild the rule
Answer each recall prompt before opening it. Then learn the exact rule, test the controlling facts through four quick challenges, explore common questions, and finish with one own-words teach-back.
- 2 · ApplyUse it in context
Complete at least 11 mapped questions over two sessions. Review the explanation even when the answer is correct.
- 3 · ProveTest readiness
Use the Part 1 mock under time pressure. Return here for every flagged or missed concept before the next attempt.
Verified recall questions
Only cards whose complete question and answer were checked against exact primary-authority evidence appear here. Stable unit ownership gathers this lesson across 1 textbook collection.
Q1.Are workers’ compensation benefits received for an occupational injury or sickness taxable?
No. Benefits paid under a workers’ compensation act or similar statute are exempt from tax.
Q2.How is qualifying military combat pay treated for federal income tax?
Qualifying combat-zone pay is excluded from income, subject to the commissioned-officer limitation.
Q3.Recall the rule for this EA objective in Preliminary Work And Taxpayer Data: Sources of worldwide taxable and non-taxable income (e.g., interest, wages, business, sales of property, dividends, rental income, flow-through entities, alimony received)
Worldwide income
Q4.Recall the rule for this EA objective in Income And Assets: 1099 MISC, 1099 NEC, 1099 K reporting, irregularities, and corrections
When business payments exceed $20,000 and more than 200 transactions occur
Q5.What compensation is generally included in gross income?
wages, salaries, bonuses, commissions, and similar pay for services tips when received noncash compensation at fair market value unless a specific exclusion applies
Q6.Name common fringe benefits that may be excluded from wages when requirements are met.
no-additional-cost services qualified employee discounts working-condition fringes de minimis fringes qualified transportation fringes within limits certain employer-provided educational, dependent-care, adoption, and group-term-life benefits within applicable rules
Q7.Why does worker classification matter for individual income reporting?
employees generally receive Form W-2 wages with withholding and employment taxes independent contractors generally receive Form 1099-NEC or similar reporting and may owe self-employment tax misclassification changes withholding, SE tax, and deductible expense treatment
Q8.How are cash tips generally treated for income-tax purposes?
cash tips of $20 or more in a month while working for one employer must be reported to the employer all tips are generally includible in gross income unreported tips remain taxable even if not reported to the employer
Q9.Flavian owns a restaurant. He provides his daytime waitress, Alida, two free meals during each workday. Flavian encourages (but does not require) Alida to have her breakfast on the business premises before starting work so she can help him answer phones. She is required to have her lunch on the premises. How should Flavian treat this fringe benefit to Alida?
None of Alida's meals at the restaurant are taxable.
Q10.Which of the following fringe benefits is taxable (or partially taxable) to the employee?
An employer-provided company car that is used for personal commuting.
Q11.Anastasia is a sales rep who sells pharmaceutical drugs to doctor's offices on commission (she is an employee). On December 25, 2025, Anastasia receives $12,000 of income from commissions, plus an advance of $1,000 for future commissions. She also receives a $200 check for expense reimbursements from her employer after turning in her receipts as part of an accountable plan. How much taxable income should Anastasia report on her 2025 tax return?
$13,000
Q12.Rasheed is employed as a staff accountant by a large CPA firm. When he travels for his audit work, he submits his travel receipts for reimbursement by his firm, which has an accountable plan for its employees. Which of the following statements about accountable plans is correct?
The reimbursed amounts are not taxable to Rasheed.
Q13.Salvador is an enlisted soldier in the U.S. Army who served in a combat zone from January 30, 2025, to September 2, 2025. He returned to the United States and received his regular duty pay for the remainder of the year. How many months of his income are taxable in 2025?
Three months of wages are subject to tax.
Q14.Cruz is a bartender at Jack's Bistro. In 2025, his Form W-2 shows $60,000 in box 1 and $20,000 in box 7 (Social security tips). Cruz also reports $4,000 of unreported tips on Form 4137. Cruz files as single, and his modified adjusted gross income is $152,400. What amount of qualified tip deduction may Cruz claim for 2025?
$23,800
Q15.What is "adjusted gross income"?
Gross income minus certain allowable adjustments, calculated before the standard deduction or itemized deductions are taken.
Q16.Bartholomew is a naval officer who was injured while serving in a combat zone. He was later awarded Veterans Affairs (VA) disability benefits. How are these payments reported on Bartholomew's tax return?
100% of the disability benefits may be excluded from income.
Ready to move on?
- ▸ Explain at least 80% of these 16 rules without opening the answer, twice on different days.
- ▸ Score 80% across 11 or more mapped questions over two sessions, not one memorized round.
- ▸ Complete a timed Part 1 mock and return to this unit if its concepts remain flagged or missed.
Use these checks to choose your next study action. They do not predict a PSI scaled score.