Which of the following is NOT typically classified as taxable income?

Scholarship funds used for qualified education expenses are generally not classified as taxable income. This is because the IRS allows individuals to exclude scholarships from their taxable income, provided that the funds are used for qualifying educational expenses. These expenses typically include tuition, fees, books, and supplies required for courses at an accredited educational institution.

To qualify for this exclusion, the student must be enrolled in a degree program or other recognized educational pursuits, and the expenses must be directly related to their education. This is designed to encourage education and help students manage the costs associated with it.

In contrast, gambling winnings, alimony payments (when applicable under prior tax laws), and unemployment compensation are typically considered taxable income. Gambling winnings are subject to federal income tax and must be reported on tax returns. Alimony payments were taxable for the recipient and deductible for the payer (for agreements made before 2019), while unemployment compensation is also subject to income tax. Therefore, scholarship funds used for qualified expenses stand out as the correct answer because they do not usually incur taxation under the right conditions.