When it comes to taxes, the IRS has specific rules about what needs to be reported as income. However, not all types of income are taxable. Some categories are completely tax-free, while others may have specific conditions.
Knowing what the IRS doesn’t tax can help you save money and better plan your finances.
13 Types of Income that The IRS Does Not Tax.
Gifts
If You Receive Gifts, You Don’t Need to Report Them as Income. the Giver Is Responsible for Any Taxes, Not the Receiver.
However, There Are Limits on How Much Someone Can Give Before They Owe Taxes.
Inheritances
Money or Property You Inherit Is Usually Not Taxed as Income. However, Estate Taxes Might Apply to The Deceased Person’s Assets, but That’s Separate from Income Tax.
Child Support Payments
If You’re Receiving Child Support Payments, They Are Not Considered Taxable Income. These Payments Are Not Deductible for The Payer Either.
Life Insurance Payouts
When a Loved One Passes Away and You Receive Life Insurance Benefits, the IRS generally Does Not Tax This Money. However, Any Interest Earned on The Payout May Be Taxable.
Scholarships and Fellowships
If You’re a Student, Scholarships and Grants Used for Tuition, Books, and Other Education Expenses Are Usually Tax-Free. However, if You Use the Money for Living Expenses, It May Be Taxable.
Workers’ Compensation Benefits
If You Get Workers’ Compensation for An Injury or Illness Related to Your Job, Those Benefits Are Not Taxed. This Applies to Payments Received Under a Workers’ Compensation Law.
Certain Disability Benefits
Disability Benefits Received Through Insurance You Paid for Yourself Are Tax-Free. However, if Your Employer Paid for The Insurance, the Benefits Might Be Taxable.
Health Savings Account (hsa) Distributions
Money Withdrawn from An Hsa to Pay for Qualified Medical Expenses Is Not Taxable. This Makes HS a Great Tool for Saving on Healthcare Costs.
Welfare Benefits
Government Assistance Programs, Like Food Stamps or Cash Assistance, Are Not Taxed. These Programs Are Designed to Provide Support without Creating Additional Financial Burdens.
Rebates
When You Receive a Rebate from A Purchase, It’s Not Considered Income. Rebates Are Treated as A Reduction in The Price of What You Bought.
Veterans’ Benefits
Benefits Received by Veterans, Such as Disability Compensation or Education Grants, Are Generally Tax-Free. This Also Includes Pensions for Injuries or Illnesses Resulting from Military Service.
Certain Legal Settlements
Compensation from Lawsuits for Physical Injuries or Illnesses Is Usually Not Taxable. However, Punitive Damages or Settlements for Emotional Distress Not Tied to A Physical Injury May Be Taxed.
Municipal Bond Interest
If You Invest in Municipal Bonds, the Interest You Earn Is Often Exempt from Federal Taxes. In some cases, It May Also Be Exempt from State or Local Taxes.
Understanding these non-taxable incomes can help you make better financial decisions and avoid unnecessary worries during tax season. Always consult a tax professional for advice tailored to your specific situation.
Disclaimer- Our team has thoroughly fact-checked this article to ensure its accuracy and maintain its credibility. We are committed to providing honest and reliable content for our readers.
Archer Bannister is a journalist with 4 years of experience covering hard-hitting stories. Currently working with Mikeandjonpodcast, Archer specializes in delivering timely and in-depth updates on a variety of topics, including crime news, politics, and national issues affecting the USA. His expertise and dedication to delivering accurate, impactful news make him a trusted voice for audiences seeking to stay informed on critical topics.
