Ten Sources of Tax-Free Income
From Wikicpa
The biggest source of tax-free income for many individuals comes from Social Security benefits. These benefits are tax-free unless your income exceeds a certain amount.
The base amounts for figuring possible tax liability on benefits are:
- $25,000 for single, head of household, or qualifying widow or widower with a dependent child.
- $25,000 for married individuals filing separately and who did not live with their spouses at any time during the year.
- $32,000 for married couples filing jointly.
- Zero for married persons filing separately who lived together.
Ten other sources
1. Child Support: Parents who receive child support from an ex-spouse do not report it as income.
2. US Savings Bonds: Interest on some bonds can be tax free for parents who redeem the bonds to pay college tuition.
3. Disability Income: Worker's compensation benefits due to an injury on the job are not subject to income tax.
4. Life Insurance: Beneficiaries don't pay tax on insurance proceeds, but an owner of a policy could face tax if it is cashed in for more than the premium paid.
5. Scholarships: They are not taxable when the recipient uses the money towards a degree and the funds are used for tuition, fees and school supplies. And the scholarship is not related to work or employment.
6. Municipal Bonds: Federal income tax doesn't apply to interest from state or local government debt obligations.
7. Welfare Payments: Aid to individuals and families with dependent children and disaster relief payments are normally tax free.
8. Rental of a Home: Income received from renting your personal residence or a vacation home for 14 or fewer days per year is also tax-free.
9. Sale of a Home: Within certain limitations, individuals can exclude $250,000 and married couples $500,000 on gains from the sale of their homes.
10. Gifts: Bequests and gifts are tax-free. Any possible tax would be paid by the giver.
