12
Tax-Free and Nontaxable Income: What Qualifies
You’re our first priority.
Every time.
We believe everyone should be able to make financial decisions with confidence. While we don’t cover every company or financial product on the market, we work hard to share a wide range of offers and objective editorial perspectives.
So how do we make money? Our partners compensate us for advertisements that appear on our site. This compensation helps us provide tools and services - like free credit score access and monitoring. With the exception of mortgage, home equity and other home-lending products or services, partner compensation is one of several factors that may affect which products we highlight and where they appear on our site. Other factors include your credit profile, product availability and proprietary website methodologies.
However, these factors do not influence our editors’ opinions or ratings, which are based on independent research and analysis. Our partners cannot pay us to guarantee favorable reviews. Here is a list of our partners.
do not influence our editors’ opinions or ratingsTax-Free and Nontaxable Income: What Qualifies
All income is taxable unless the IRS explicitly says it's not.
Many, or all, of the products featured on this page are from our advertising partners who compensate us when you take certain actions on our website or click to take an action on their website. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money.
Updated · 3 min readHow is this page expert verified?
NerdWallet's content is fact-checked for accuracy, timeliness and relevance. It undergoes a thorough review process involving writers and editors to ensure the information is as clear and complete as possible.
More on our editorial rigor
Editor & Content Strategist
23 years of experience Expertise Taxes Small business Social Security and estate planning Home services RIATina Orem is an editor and content strategist at NerdWallet. Prior to becoming an editor and content strategist, she covered small business and taxes at NerdWallet. She has a degree in finance, as well as a master's degree in journalism and an MBA. Previously, she was a financial analyst and director of finance at public and private companies. Tina's work has appeared in a variety of local and national media outlets.
Tina Orem is an editor and content strategist at NerdWallet. Prior to becoming an editor and content strategist, she covered small business and taxes at NerdWallet. She has a degree in finance, as well as a master's degree in journalism and an MBA. Previously, she was a financial analyst and director of finance at public and private companies. Tina's work has appeared in a variety of local and national media outlets. Published in Editor & Content Strategist + more + more
Head of Content, New Verticals
11 years of experienceChris Hutchison helped build NerdWallet's editorial operation and has directed coverage across banking, investing, taxes and insurance. He now leads a team exploring new verticals. Before joining NerdWallet, he was an editor and programmer at ESPN and an editor at the San Jose Mercury News.
Chris Hutchison helped build NerdWallet's editorial operation and has directed coverage across banking, investing, taxes and insurance. He now leads a team exploring new verticals. Before joining NerdWallet, he was an editor and programmer at ESPN and an editor at the San Jose Mercury News. Head of Content, New Verticals + more + moreThe IRS taxes just about everything — from your paycheck to investment income to lottery winnings. But what kinds of income does the IRS not tax?
The IRS taxes just about everything — from your paycheck to investment income to lottery winnings. But what kinds of income does the IRS not tax?» MORE: Check out our free tax calculator
» MORE: » » MORE: Check out our free tax calculator AD Owe $10,000+ or More? This Tax Season Could Be Your Chance to Qualify Each year the IRS writes off millions in tax debt, yet few have applied. Learn moreon Anthem Tax Services' website
AD Let’s resolve your tax issues: Tax Relief & Resolution Services for IRS Tax Debt Certified Enrolled Agents, CPAs, and Tax Attorneys on your case. Learn moreon TaxRise's website
14 types of tax-free income
14 types of tax-free incomeHere's a quick guide to the types of income that Uncle Sam's tax collector doesn't get to reel in.
Here's a quick guide to the types of income that Uncle Sam's tax collector doesn't get to reel in.1. Educational assistance from your boss
1. Educational assistance from your bossIf you receive educational assistance from your employer, the IRS allows you to exclude up to $5,250 of the amount from your income.
If you receive educational assistance from your employer, the IRS allows you to exclude up to $5,250 of the amount from your income.2. Adoption help from your employer
2. Adoption help from your employerIf your company helps you cover the cost of adopting a child, that’s usually not taxable income. For the 2025 tax year, the tax-free employer-provided adoption assistance is $17,280 per child. The amount you can exclude depends on your modified adjusted gross income.
If your company helps you cover the cost of adopting a child, that’s usually not taxable income. For the 2025 tax year, the tax-free employer-provided adoption assistance is $17,280 per child. The amount you can exclude depends on your modified adjusted gross income .3. Child support
3. Child supportChild support payments are not taxable income.
Child support payments are not taxable income.4. Payments for caring for children
4. Payments for caring for childrenGovernment payments to foster parents for their care of children officially placed in their homes are generally tax-free income.
Government payments to foster parents for their care of children officially placed in their homes are generally tax-free income.5. Workers' compensation
5. Workers' compensationIf you get benefits for a workplace-related illness or injury under federal or state compensation law, that money is tax-exempt. However, if part of your workers' compensation reduces Social Security or railroad retirement benefits you’ve received, that part may be taxable. Also, if you go back to work on light duties, the salary payments might be taxable.
If you get benefits for a workplace-related illness or injury under federal or state compensation law, that money is tax-exempt . However, if part of your workers' compensation reduces Social Security or railroad retirement benefits you’ve received, that part may be taxable. Also, if you go back to work on light duties, the salary payments might be taxable.6. Life insurance proceeds
6. Life insurance proceedsWhen these are paid to you because of the death of the insured person, the amount is usually not taxable. There are exceptions; IRS Publication 525 has the details.
When these are paid to you because of the death of the insured person, the amount is usually not taxable. There are exceptions; IRS Publication 525 has the details.7. Some canceled debts
7. Some canceled debtsIf a lender cancels debt you owe, you may be able to exclude it from your gross income if the debt was canceled in a bankruptcy case, was canceled when you’re insolvent, was qualified farm debt, was debt associated with a qualified real property business, was intended as a gift or was for your home. There are exceptions and details to understand, so be sure to see IRS Publication 525.
If a lender cancels debt you owe, you may be able to exclude it from your gross income if the debt was canceled in a bankruptcy case, was canceled when you’re insolvent, was qualified farm debt, was debt associated with a qualified real property business, was intended as a gift or was for your home. There are exceptions and details to understand, so be sure to see IRS Publication 525.8. Energy conservation subsidies
8. Energy conservation subsidiesSay you upgraded your home's air conditioning system and got a rebate from your electric company as a reward for your energy-saving efforts. That financial thank you is generally tax-free income.
Say you upgraded your home's air conditioning system and got a rebate from your electric company as a reward for your energy-saving efforts. That financial thank you is generally tax-free income.This is true whether the subsidy for purchasing or installing a home energy conservation measure was direct or indirect.
This is true whether the subsidy for purchasing or installing a home energy conservation measure was direct or indirect.9. Municipal bond earnings
9. Municipal bond earningsInterest you earn on state and local government bonds generally is not taxable. Even better, if you buy municipal bonds issued by the state in which you live, the interest usually isn’t taxable at the state level either.
Interest you earn on state and local government bonds generally is not taxable. Even better, if you buy municipal bonds issued by the state in which you live, the interest usually isn’t taxable at the state level either.» Learn how to get started buying bonds
» » » Learn how to get started buying bonds10. Gifts
10. GiftsFinancial gifts, either money or other assets, that you receive are not taxable. If any federal gift tax is owed, the giver is responsible for the tax.
Financial gifts, either money or other assets, that you receive are not taxable. If any federal gift tax is owed, the giver is responsible for the tax.11. Inheritance
11. InheritanceThere is no federal inheritance tax, so everything your relative left you shouldn’t pose any immediate tax issues. However, if they left you an asset that produces income, such as a dividend-paying stock, then you may owe tax on the money the bequest earns.
There is no federal inheritance tax, so everything your relative left you shouldn’t pose any immediate tax issues. However, if they left you an asset that produces income, such as a dividend-paying stock, then you may owe tax on the money the bequest earns.» See which states have inheritance taxes
» » » See which states have inheritance taxes12. Accelerated death benefits
12. Accelerated death benefitsIf you receive death benefits from a life insurance contract or viatical settlement because you’re terminally or chronically ill, you may be able to exclude the money from your income.
If you receive death benefits from a life insurance contract or viatical settlement because you’re terminally or chronically ill, you may be able to exclude the money from your income. AD Owe $10,000+ or More? This Tax Season Could Be Your Chance to Qualify Each year the IRS writes off millions in tax debt, yet few have applied. Learn moreon Anthem Tax Services' website
AD Let’s resolve your tax issues: Tax Relief & Resolution Services for IRS Tax Debt Certified Enrolled Agents, CPAs, and Tax Attorneys on your case. Learn moreon TaxRise's website
13. Disaster relief payments
13. Disaster relief paymentsIf you’re the victim of certain disasters, you typically can exclude money you get from the government or transportation carrier to pay for personal expenses, funerals, home repair and property replacements that insurance doesn’t cover.
If you’re the victim of certain disasters, you typically can exclude money you get from the government or transportation carrier to pay for personal expenses, funerals, home repair and property replacements that insurance doesn’t cover.14. Some withdrawals from a Roth IRA
14. Some withdrawals from a Roth IRAYou can withdraw your Roth IRA contributions — that's the money you put in yourself, not the gains on that money — whenever you want, without owing any penalties or taxes, no matter how long your account has been open. That's because the money you put in is money you already paid income tax on.
You can withdraw your Roth IRA contributions — that's the money you put in yourself, not the gains on that money — whenever you want, without owing any penalties or taxes, no matter how long your account has been open. That's because the money you put in is money you already paid income tax on.Read the fine print
Read the fine printIn some cases, a certain type of payment might be tax-free while another, very similar one will lead to a tax bill. Here are three instances where you need to take special care.
In some cases, a certain type of payment might be tax-free while another, very similar one will lead to a tax bill. Here are three instances where you need to take special care.Some legal settlements are nontaxable, but others are. To determine whether you owe the U.S. Treasury a piece of your court award, consider what the settlement replaces and why it was granted. Proceeds for emotional distress originating from a personal physical injury or physical sickness, for example, are typically tax-free. However, court-awarded punitive damages are taxable, even if the punitive damages were in connection with a settlement for personal physical injuries or sickness.
Some legal settlements are nontaxable Some legal settlements are nontaxable , but others are. To determine whether you owe the U.S. Treasury a piece of your court award, consider what the settlement replaces and why it was granted. Proceeds for emotional distress originating from a personal physical injury or physical sickness, for example, are typically tax-free. However, court-awarded punitive damages are taxable, even if the punitive damages were in connection with a settlement for personal physical injuries or sickness.Social Security is generally tax-free if it's your only source of income. But if you have other income — for example, from a part-time job, a taxable pension or investment earnings — you could owe federal tax at your ordinary income tax rate on up to 85% of your federal government retirement benefits.
Social Security Social Security is generally tax-free if it's your only source of income. But if you have other income — for example, from a part-time job, a taxable pension or investment earnings — you could owe federal tax at your ordinary income tax rate on up to 85% of your federal government retirement benefits.Home sale proceeds are tax-free for many, so long as the profit is at or below a certain threshold: $250,000 for a single seller and $500,000 for a married couple filing a joint return
Home sale proceeds Home sale proceeds are tax-free for many, so long as the profit is at or below a certain threshold: $250,000 for a single seller and $500,000 for a married couple filing a joint return Internal Revenue Service. Topic No. 701, Sale of Your Home. Accessed Nov 14, 2025. . But if you make more than that on the sale, the IRS collects tax on the excess.» Learn more about capital gains tax on home sales
» » » Learn more about capital gains tax on home salesRemember, too, that in some cases your personal circumstances, such as the amount of other money you make, could have an effect on apparently tax-free situations.
Remember, too, that in some cases your personal circumstances, such as the amount of other money you make, could have an effect on apparently tax-free situations.So when you find yourself receiving money you think is tax-free, double-check it. IRS Publication 525 has details on taxable and nontaxable income. A tax professional can help, and good tax software will walk you through all the variables, as well.
So when you find yourself receiving money you think is tax-free, double-check it. IRS Publication 525 has details on taxable and nontaxable income. A tax professional can help, and good tax software will walk you through all the variables, as well.Helpful resources
Helpful resources How Federal Tax Brackets and Rates Work Federal Income Tax Calculator and Refund Estimator 2025-2026 25 Popular Tax Deductions and Tax Breaks for 2025-2026 More like this Taxes Popular Tax Credits for 2026: How They Work Tax credits can come in handy when it's time to file your return. Here's a breakdown of common ones, including the earned income credit, child tax credit and clean energy credits. 2 By Sabrina Parys, Tina Orem 25 Popular Tax Deductions and Tax Breaks for 2025-2026 A deduction cuts the income you're taxed on, which can mean a lower bill. A credit cuts your tax bill directly. Learn more about common tax breaks and write-offs — and how to claim them. 2 By Sabrina Parys, Tina Orem Itemized Deductions: What They Are, Examples Itemizing allows you to pick and choose your tax deductions. Common deductions include those for medical expenses, mortgage interest and property tax. 2 By Tina Orem, Sabrina Parys Get started Get startedon Anthem Tax Services's website
Minimum Tax Amount: $10,000;
Minimum Tax Amount: $10,000;100% Money-Back Guarantee;
100% Money-Back Guarantee;Free, No-Obligation Tax Analysis;
Free, No-Obligation Tax Analysis;A+ BBB Rating.
A+ BBB Rating. Get started Get startedon Anthem Tax Services's website