What is nontaxable income?
The following types of income are nontaxable to both residents and nonresidents. Nontaxable income includes: • Gifts, inheritances, bequests and distributions of principal from estates and trusts. • Proceeds from insurance, pensions, annuities and retirement benefits (including Social Security) even if taxable under the Internal Revenue Code. • Unemployment compensation, supplemental unemployment benefits, welfare relief payments and workers compensation. • Interest from U. S. obligations such as Savings Bonds and Treasury Notes, obligations of the states, or subordinate units of government of the states. • Compensation for service in the U. S. armed forces, including reserve components. The following items are nontaxable to nonresidents: • Interest, dividends and royalty income. • Income from trusts and estates. • Deferred compensation received when no longer an employee.
Don’t overpay the IRS by including nontaxable income on your tax return. The following are some of the main nontaxable items of income: • Life insurance proceeds • IRA and Pension rollovers • Child support payments • IRS Economic Stimulus Payments (Tax Rebates) • Inheritances • Gifts • Workers Compensation • Disability payments if you paid the premiums on the policy. If your employer paid the policy, then the disability payments are taxable. If you paid part of the policy, then part of the disability payments you paid are nontaxable. • Court damages for personal physical injuries or physical sickness • Health and accident benefits • Federal income tax refund (Also your state income tax refund if you took the standard deduction on the related prior year’s 1040) • Most scholarships and fellowships • Foreign earned income (needs to be reported on Form 2555, but up to $80,000 usually can be excluded) • Foster care payments (certain restrictions for individuals over age 18 in foster care) •
Interest and dividend income, social security benefits, pensions, disability benefits, active military pay, third party sick pay, lottery winnings, death benefit payments, gifts or bequests, unemployment compensation, supplemental unemployment benefits (SUB), public assistance, income from stocks or trusts and capital gains. The net profit received from a Sub-chapter S corporation is not taxable at the local level, however, you must report this income when filing your Final Tax Return for the year. (There is a space provided to record your Sub Chapter S profits under “Additional Information” of your Final Tax Return.
