Nontaxable Income

Nontaxable income refers to certain types or classifications of income as defined by the Internal Revenue Service that is not subject to income tax. Nontaxable income includes payments received for child support, gifts and inheritances, welfare benefits, court damages awarded for injury or illness, life insurance proceeds from the insured's death, scholarship monies used for tuition and books, and reimbursements for adoption expenses.

In addition, several other types of income are not taxed depending on the circumstances of the taxpayer. The capital gain from the sale of a home is not taxable as income so long as it does not exceed $250,000 for an individual or $500,000 for a couple who use married filing jointly and if they have lived in the home as a principle residence for at least two of the last five years.

The interest earned from municipal bonds is not taxed, so long as the taxpayer lives in the state where the bonds were issued.