Nontaxable Income

Some types of income you receive are nontaxable. However, you should keep records of your nontaxable income since the amounts may affect your tax return or you may need to prove the source of the income during an IRS examination. Some types of income that are generally nontaxable include, but are not limited to:

• Child support payments;

• Energy Star Appliance Rebates;

• $250 Medicare rebate for Medicare Part D prescription coverage gap in year 2010;

• Cash for Clunkers Vouchers under the CARS government program to purchase or lease a new fuel-efficient vehicle in year 2009;

• Welfare benefits (includes payments made under governmental programs for the promotion of the general welfare, such as income from the Department of Housing and Urban Development’s Emergency Homeowners’ Loan Program (EHLP) and any existing state program receiving funding from the EHLP (the substantially similar state programs or SSSPs);

• Life insurance proceeds that are received because of the death of an individual;

• Interest on state or local government obligations;

• Payments for PHYSICAL injury and sickness, including certain long term care insurance contracts;

• Certain property received as a gift or inheritance;

• Economic Recovery Payments;

• COBRA Premium Assistance Payments;

• Unemployment Compensation (applies ONLY to the first $2,400 received in tax year 2009). Fully taxable in all other tax years;

• Benefits received under any law administered by the Department of Veteran's Affairs;

• Amounts received under a worker's compensation act for an occupational sickness or injury;

• Qualified Coverdell education savings account distributions;

• Certain Roth IRA distributions;

• Certain amounts withdrawn from Archer Medical Savings Accounts (MSA) or a Health Savings Accounts (HSA);

• Limited amounts of dependent care assistance paid through a dependent care assistance program;

• All or a portion of your Social Security or equivalent Railroad Retirement Benefits;

• Certain scholarship and fellowship grants;

• Certain foreign-earned income;

• Fringe benefits (medical, health, & disability premiums) paid by your employer are generally excluded;

• Life insurance of less than $50,000 paid by your employer is generally excluded;

• Black Lung Benefits;

• Federal Employees' Compensation Act payments;

• Government cost-of-living allowances for civilian employees stationed outside the continental United States or Alaska;

• Certain military allowances;

• Military combat pay;

• Worker's Compensation;

• All or some moving expense reimbursements provided by your employer;

• Cash rebates;

• Energy conservation subsidies;

• Historic preservation grants;

• Interest on frozen deposits and qualified savings bonds;

• Parsonage allowances;

• Bankruptcy debt forgiveness;

• Capital contributions to a corporation;

• Meals provided by employer to employee on employer’s premises;

• Exclusion of gain from sale of primary residence up to $250,000 ($500,000 if married filing jointly). Click here for more information.

• Lodging reimbursements by an insurance company because home suffered a casualty;

• Educational assistance program provided by employer (exclusion allowed up to $5,250);

• Foster care payments;

• Interest on Series EE and I U.S. Savings Bonds issued after 1989, which is used to pay qualified higher education expenses;

• Adoption assistance payments;

• Health insurance proceeds;

• Donated vacation pay;

• Qualified Tuition Program (QTP) payments, which are used for qualified educational expenses;

• Qualified "disaster relief" payments;

• FEMA Disaster Mitigation Grants.

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