Nontaxable or tax exempt income is income that is not subject to income tax, and you do not report these on your tax return. Surprisingly to some taxpayers, there are quite a number of income sources that are actually nontaxable, and these include the following:

• Child support.
• Federal tax refunds.
• Interest on state or local government obligations, such as municipal bonds.
• Welfare and other public assistance benefits.
• Workers’ compensation and similar payments for sickness and injury.
• Meals and lodgings provided by your employer. These will be excluded from your taxable income if: (a) the meals are furnished on your employer’s business premises, (b) the meals are furnished for the convenience of your employer, and (c) the lodging is required for employment.
• Employee achievements awards.
• Employer contributions to a medical savings account.
• Most life insurance proceeds received by beneficiaries upon death of the policyholder.
• Accident and health insurance proceeds.
• Casualty insurance.
• Education assistance program. Your employer must exclude from your taxable income, the first $5,250 of any qualified educational assistance paid to you each year. The payments do not have to be for work-related courses and can be for both undergraduate and graduate-level courses. Educational assistance includes payments for: tuition, fees and similar payments, books, supplies, and equipment. Educational assistance does not include expenses for meals, lodging, and transportation.
• Part or all of Social Security benefits (this depends on the level of your other income).
• Part of scholarships and fellowship grants. Only a candidate for a degree program can exclude from income amounts received as a qualified scholarship. The amounts excluded must be for tuition and fees, books, supplies, and equipment required for courses. Any amounts received for room and board are taxable.
• Housing allowances for members of the clergy.
• Veterans’ disability benefits. Allowances paid by the department of Veterans Affairs are not included in taxable income.
• Military allowances.
• Gifts, bequests, inheritances (these may be subject to other taxes, such as gift tax).
• Disaster relief grants.
• Damages for physical injury or sickness.

If you have income from a source not listed above, and you are not sure whether its taxable or not, do not hesitate to give the IRS a call for clarification.

The primary objective of this article is to empower taxpayers to learn to do their own taxes.