The IRS taxes most income unless explicitly stated otherwise. Here’s a breakdown of common types of tax-free income and key exceptions.

What Is Nontaxable Income?

Nontaxable income refers to money the IRS does not require you to report as taxable earnings. Below are 14 examples:

• Educational Assistance from Employers

• Up to $5,250 annually in employer-provided educational assistance is tax-free.

• Adoption Assistance from Employers

• In 2021, up to $14,440 per child in employer-provided adoption assistance is tax-free.

• Child Support

• Payments received for child support are not taxable.

• Payments for Foster Care

• Payments from the government for caring for foster children are tax-free.

• Workers' Compensation

• Benefits received for workplace-related injuries or illnesses are generally tax-free.

• Life Insurance Proceeds

• Death benefits from life insurance policies are typically not taxed, with some exceptions.

• Some Canceled Debts

• Debt forgiven in bankruptcy, insolvency, or as a gift may not be taxable.

• Energy Conservation Subsidies

• Rebates or subsidies for energy-efficient home improvements are tax-free.

• Municipal Bond Interest

• Interest from state or local government bonds is usually exempt from federal taxes (and often state taxes, if bought in your state).

• Gifts

  • Financial gifts you receive are not taxable. If gift tax is owed, it’s paid by the giver.

• Inheritance

  • Inherited assets are not taxed federally, but income generated from the inheritance may be taxable.

• Accelerated Death Benefits

  • Benefits from life insurance or viatical settlements for terminally or chronically ill individuals are generally tax-free.

• Disaster Relief Payments

  • Government or transportation carrier funds for uninsured personal expenses or property replacement due to disasters are tax-exempt.

• Some Roth IRA Withdrawals

  • Contributions (not earnings) can be withdrawn tax-free anytime, since taxes were already paid on those amounts.

Tax-Free Situations with Conditions

• Legal Settlements

• Payments for physical injuries or sickness are tax-free. Punitive damages, however, are taxable.

• Social Security Benefits

• These are tax-free if Social Security is your only income source. With other income, up to 85% of benefits may become taxable.

• Home Sale Profits

• Profit up to $250,000 (single filers) or $500,000 (married filers) is tax-free if you meet IRS criteria. Excess gains are taxable.

Pro Tips

• Check IRS Guidelines: IRS Publication 525 outlines taxable and nontaxable income.
• Consult Professionals: Tax advisors and software can help identify tax-free income sources and ensure compliance.
• Double-Check Conditions: Income taxability can depend on circumstances, including total earnings and specific exclusions.

Make the most of tax-free income opportunities to maximize your earnings!

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