Monday, April 16, 2012

Top 5 Non-Taxable Income Sources In California

Non-Taxable Income Examples
(Question 21, CA State Income Tax Form)
The state government in California has earned notoriety for over-regulating things, and in truth, that reputation is deserved, particularly in matters related to public safety and the environment. As you would expect, a state that is its lawmaking also has some interesting details in its tax code.

While preparing my California state taxes this weekend, I ran across several unique "adjustments" I could legally make to my taxable income, which could have reduced the overall amount of state income tax I was required to pay. Sadly, as I earned income from none of these sources, they didn't apply to me.

Here are the Top 5 Non-Taxable Income Sources In California.

1. Reward from a Crime Hotline
 - Rest assured, if you tattle in California, you won't be taxed for it.

2. False Imprisonment Compensation
 - That's right. If we get overzealous and inadvertently jail you, we'll pay you for your time in tax-free dollars.

3. Ottoman Turkish Empire Settlement Payment
 - I had no idea the Ottoman Turks were still relevant, but apparently they did some awful stuff to Armenians between 1915-1923. Good to know compensation for near genocide is non-taxable.

4. San Bruno Gas Explosion
- Any reimbursement you received because Pacific Gas & Electric accidentally blew up your home and all your belongings is non-taxable. This gives me an idea for a new state motto: California - our generosity knows no bounds.

5. California Lottery Winnings
- If you're one of the lucky winners (and there must be a handful of you somewhere), you don't have to pay tax on your California Lottery winnings.
Note: You DO have to pay tax on winnings from any other state's lottery.

With so many specific items called out as non-taxable income (including many things I could never have imagined were taxable in the first place), I was surprised to see some income sources not addressed.

For example, do children have to pay taxes on income earned from street corner lemonade stands? If I won American Idol but I'm actually from Oklahoma, is my prize money taxable? Can I keep all those foreign coins I found while beachcombing with my metal detector? And how about the $20 bill I found in the pocket of that coat I haven't worn since last winter? All mine?


  1. Recycling income?! Really?? As in the dude that scans the streets for bottles and cans as he walks around the neighborhood. Oh.....wait...I'm married to that dude. LOL!

  2. Well, I don't know what kind of income you can earn thru recycling unless you are SERIOUSLY committed, but hey, whatever you make, you keep!