There are many kinds of income and, as you may painfully know, most kinds are taxable. The IRS defines income as “the sum of all the wages, salaries, profits, interest payments, rents and other forms of earnings received in a given period of time.”

So, if you receive interest or dividends on a 1099 form, you already know that it is considered taxable income. But is all income from interest and/or dividends created equal? IRS regulations regarding income from interest and dividends are clear and, as usual, quite comprehensive.

Most interest that you either receive or is credited to your account and that can be withdrawn without penalty is taxable income and is taxed at your income tax bracket rate.

Examples of more common taxable interest are: interest on bank accounts, money market accounts, certificates of deposit, and deposited insurance dividends.

Dividends paid on deposits or share accounts in cooperative banks, credit unions, domestic savings and loan institutions, federal savings and loan associations, and mutual savings banks are also considered taxable interest income.

For most types of interest income over $10, you should receive a Form 1099- INT from the payer of the interest. Even if you do not receive this form, it is still your responsibility to report the income on your tax return.

Interest income is reported on Schedule B, Interest and Ordinary Dividends. If your taxable interest is less than $1,500, you may report the interest directly on your Form 1040, Form 1040A, or Form 1040-EZ.

However, certain interest you may receive is not taxable income. Below you can find relevant examples of nontaxable interest income.

Interest on insurance dividends left on deposit with the Department of Veterans Affairs is not taxable.

Interest on Series EE and Series I U.S. Savings Bonds generally does not have to be reported until the bonds mature or are redeemed. Interest from these bonds issued after 1989 may be excluded from income if used to pay for qualified higher educational expenses during the year and other requirements are met for the Educational Savings Bond Program.

Excludable interest from redeemed U.S. savings bonds used to pay qualified higher education expenses is figured on Form 8815, Exclusion of Interest From Series EE and I U.S. Savings Bonds Issued After 1989, and shown on Schedule B. This interest income exclusion phases out at higher income levels.

Interest income from Treasury bills, notes and bonds is subject to federal income tax, but is exempt from all state and local income taxes.

However, interest on some bonds used to finance government operations and issued by a state, the District of Columbia, or a U.S. possession is not taxable at the federal level. Report the amount of any tax exempt interest received during the tax year. This is an information reporting requirement only, and does not convert tax exempt interest to taxable interest. Form 1099-INT, Interest Income, or a similar statement should be received from each payer of interest of $10 or more, showing the taxable or tax exempt interest to be reported.

If a bond, note, or other debt instrument was originally issued at a discount, part of the original issue discount may have to be included in income each year as interest. Form 1099-OID, Original Issue Discount, or a similar statement should be received from each payer of taxable original issue discount of $10 or more, showing the amount to be reported.

Nominee interest is interest you receive on behalf of the real owner of the investment that produced interest income. You must report the amount of interest you received on Schedule B, but you will also report that the interest does not belong to you and you will not pay tax on the amount. You must give the real owner a Form 1099-INT and that person will pay tax on the interest income.

Frozen deposits are interest amounts that are accrued during the tax year but are not available for you to withdraw for either of these reasons: the financial institution is bankrupt or insolvent; the state in which the institution is located has placed limits on withdrawals due to other financial institutions becoming insolvent or bankrupt. You do not report this type of interest until the funds become available to you.

Dividends are distributions of property a corporation pays you because you own stock in that corporation.

Most dividends are paid in cash. However, dividends may be paid as stock of another corporation or any other property. You also may receive dividends through your interest in a partnership, an estate, a trust, a subchapter S corporation or from an association that is taxable as a corporation.