Know the Difference Between What Income Is Taxable or Nontaxable in California

Most income we receive is taxable both by California and by the federal government. But there are some situations when certain types of income are not taxed at all or partially taxed.

Examples of items that are not included in your income include:

Child support payments
Gifts, bequests and inheritances
Tax Exempt Interest from municipal bonds and tax exempt bond mutual funds. Although the interest is not taxable, it must be reported on your income tax return
Workers’ compensation benefits

Adoption Expense Reimbursements for qualifying expenses

Meals and Lodging for the convenience of your employer
Compensatory Damages awarded for physical injury or physical sickness

Cash Rebates from a dealer or manufacturer

Examples of items that may or may not be included in your income are:

Life Insurance. Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price. If you surrender a policy for cash, you must include in income any proceeds that are more than the cost of the policy.

Scholarship or Fellowship Grant. If you are a candidate for a degree, you can exclude amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify

A complete list is available in IRS Publication 525, Taxable and Nontaxable Income. These examples are not all-inclusive.

If you believe the IRS has taxed income that is non-taxable, consult a tax attorney. Call Mitchell A. Port at 310.559.5259.