Under the broad wording of the US Internal Revenue code section 61, income you receive from almost any source is taxable, unless specifically excluded. Yet some payments received from the government can escape taxation under a narrow set of circumstances not found in the law. Known as the general welfare exclusion, this doctrine excludes certain government benefits from gross income.
The exclusion applies to payments from a welfare fund of a local, state or federal government. The payment must not be compensation for services, and must be based on need.
Qualifying payments include payments to the blind (Revenue Ruling 57-102), awards to crime victims (Revenue Ruling 74-74), replacement housing payments to aid displaced individuals and families (Revenue Ruling 74-205), assistance payments for lower income families to acquire homes (Revenue Ruling 75-271), and grants to those who are unable to meet necessary expenses or serious needs as a result of a major disaster (Revenue Ruling 76-144).