nontaxable

Nontaxable is a term used in tax law to describe income, transactions, or items that are not subject to tax under applicable laws. It can apply at the federal level and often at state or local levels, with variations by jurisdiction. Nontaxable status affects how an item is reported on a tax return and whether any tax is due on that item. The concept is distinct from tax-exempt status, which generally refers to organizations or activities that are excluded from tax, whereas nontaxable refers to specific income or transactions that are not taxed.

Common examples of nontaxable items include life insurance proceeds paid to beneficiaries, certain gifts and inheritances received, and child support payments. Other nontaxable categories can include workers’ compensation benefits, some federal benefits in certain circumstances, and certain types of reimbursements or disaster-relief payments. In addition, interest earned on most municipal bonds is generally exempt from federal income tax, though state rules may differ. Scholarships or fellowships used for qualified expenses may also be nontaxable in whole or in part, depending on the use of funds.

Nontaxable status does not imply a broader exemption from all taxes. It simply means the item is not included in gross income for tax purposes, or is otherwise not taxed under the relevant provision. The rules governing nontaxable income can differ by jurisdiction and by the type of tax, so individuals should consult current tax guidance or a tax professional to understand how specific items apply to their situation.