Does Welfare Affect Income Taxes?

The U.S. federal government imposes taxes on money gained from a wide variety of sources such as job earnings, interest, dividends, rent and profits realized from the sale of assets. The government also provides certain individuals with income payments and other benefits based upon need, which are collectively known as welfare benefits. In general, welfare benefits do not have an impact on income taxes.

The Internal Revenue Service says that government welfare payments based upon need are not included in the recipient's taxable income. In other words, people who receive money or other benefits from welfare programs such as Supplemental Security Income, Temporary Assistance for Needy Families and food stamps do not pay income taxes on their benefits. In addition, payments received from a state fund for the victims of crime are not included in taxable income if the payments are made as welfare payments.

Money received from welfare programs may be taxable in certain circumstances. The IRS states the welfare received as compensation for services counts as taxable income and that welfare income obtained fraudulently is also taxable. For example, the Congressional Research Service says that "workfare" payments received under the Temporary Assistance for Needy Families are included in taxable income if the payments are not received directly from the state or local welfare agency. Payments received from a work-training program associated with a state welfare agency are not included in taxable income unless the payments are greater than the amount that would have been received otherwise.

The U.S. government provides income to retirees through the Social Security program. Social Security is not considered a welfare program and Social Security income may be taxable in some cases. According to the Social Security Administration, single taxpayers with income between $25,000 and $34,000 may have to pay taxes on as much as 50 percent of their Social Security benefits and those with income over $34,000 may owe income taxes on as much as 85 percent of their benefits.

Several other miscellaneous sources of government income are not included in income for tax purposes. The IRS lists the following as examples of income that is not taxable: benefits received under the Elderly Nutrition Program, payments made by states to certain qualified individuals to reduce the cost of winter energy and benefits received under Medicare Part A and Part B.