Tax-Free Income You Can Enjoy

Not every type of income you get is taxable on your Form 1040. The law allows you to receive various types of income without having to pay tax on them. For example, any type of income effectively becomes tax free if your overall gross income is below the annual threshold for filing a federal income tax return for your status. And some items (e.g., Social Security benefits, dividends, capital gains and capital gain distributions) are tax free if your overall income is below set amounts.

Here is a list of some common items you can receive without any tax concerns:

• Alimony payments pursuant to a divorce decree or separation agreement executed after 2018
• Child support payments
• Damages for personal physical injury or illness or for wrongful incarceration
• Employee fringe benefits (there are exceptions)
• Federal income tax refunds
• Foreign earned income up to a set limit ($105,900 in 2019)
• Frequent flyer miles
• Gifts and inheritances
• Health savings account distributions to pay for qualified medical expenses
• Income from any source if you fall below the filing threshold, which means you don’t have to file a return in most cases
• Insurance proceeds for health, disability, life, property, and other types of coverage
• Municipal bond interest (although it counts in determining the taxable portion, if any, of Social Security benefits)
• Home sale gains (your principal residence) up to $250,000 ($500,000 for joint filers)
• Rebates on purchases
• Rental income from your home if there are no more than 14 rental days in the year
• Roth IRA distributions if certain conditions are met
• Scholarships and fellowships for tuition for a degree program

Conclusion

The list of tax-free income items is not complete. There are many other items that you can receive tax free. For more information, see IRS Publication 525.