IRS Link to Publication — Found Here
This IRS Publication describes the distinction to be made between taxable income and nontaxable income.
Many types of individual income are described and many sources of non-taxable income are illustrated. Gross income is usually reduced by standard or itemized deductions to arrive at a portion of income which is taxable. The amount that was left out of this equation is called nontaxable income.
Nontaxable is different than non-reported income. It will appear on the tax return for the individual but will simply not be subject to taxation due to exemptions applicable to them.
Income from Roth IRA distributions, for instance, will be non-taxable. Income from non-taxable insurance products such as long term care insurance also falls into this category.
Other specific sources of non-taxable income include disability pensions and welfare benefits. Taxable income can also come from many sources, such as annuities, pensions, and even social security. Income from investments and settlements is also taxable, generally.
Some non-taxable sources of income, such as municipal bonds, can still be included in certain calculations of income, which causes them to be indirectly taxed in come cases.
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