Nontaxable income refers to any type of income that is not subject to federal or state income taxes. This means it will not be included in your taxable income when you file income tax return.
When you file tax return, you report all of income, including nontaxable income to IRS. By excluding certain types of income from income taxes, nontaxable income can help reduce tax liability.
Nontaxable income can come in various forms, such as gifts, inheritances, life insurance proceeds, disability benefits, scholarships, child support and grants.
Amount of nontaxable income that you can earn varies depending on the source of the income and your individual circumstances. Some types of nontaxable income have no limit.
It's important to note that even though nontaxable income is not subject to income tax, it may still be subject to other taxes, such as Social Security and Medicare taxes.