Tax, the most terrifying word, isn’t it? Maybe it is rightly said that death and taxes are two inevitable parts of human life! But what’s worse is when the federal government acts like the bone in the pie.
The Internal Revenue Service (IRS) is the body in America that is responsible for collecting direct and indirect taxes, which take up a percentage of the money the citizens give the government.
While IRS rules differ from state to state, they are the same law in most places. However, several forms of income are surprisingly exempt. Whether it’s money received through scholarships, life insurance, or even selling your home, the tax code includes a number of exceptions that can legally lower your tax load.
Moreover, with the Trump administration changing a lot of rules in the country, it is important to be aware of the changes.
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As per Finance Buzz, understanding how tax-free income works would not only make everyone’s financial planning better but also make you smarter and more confident. Therefore, here are seven types of income the IRS doesn’t tax — and some of them might just surprise you.
First and foremost, for the couple who are heading for a divorce after January 1, 2019, in America, the alimony that will be given is not considered taxable income. Conversely, the payer cannot deduct these payments. Next, whoever is paying child support after a separation or divorce is neither taxable for the recipient nor deductible for the payer. The IRS does not consider child support as income.
Third, we have money that comes from inheritance (passed on to you). Usually, inheritance is not considered taxable. However, certain inherited assets may generate taxable income, such as interest or dividends. Fourth, one happens to be money that students receive from scholarships.
While a lot of students get scholarships to cover tuition fees for academic degrees, research work, and books, these are not taxable, provided you are a degree candidate at an eligible institution. However, amounts used for room and board are taxable.
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Fifth, we have adoption assistance. If your employer helps cover the costs of adopting a child, that financial support is considered non-taxable income by the IRS for the 2025 tax year. This rule applies to an income up to $17,280. While there are also other qualifying expenses, this tax exemption makes it more accessible and affordable.
Sixth, we are not liable to pay tax when we receive a gift. For instance, any property or money given out of generosity is considered a gift tax. If you have someone who has sent you money in America as a token of love and appreciation or simply to celebrate your birthday or other major milestones, then any amount up to $19,000 per recipient in 2025 falls under the tax-free bracket.
However, if any gift exceeds the amount mentioned above, it may be subject to tax. Please keep in mind that here, the person who’s sending the gift has to pay the taxes and not the receiver.
Seventh, we have credit card rewards; most rewards, like cash back, miles, and points, are treated as rebates and are not taxable, provided they are earned through spending. Eight, we have life insurance payouts. Reportedly, any amount of insurance death benefits paid to beneficiaries is not taxable.
However, any interest earned on the payout is taxable. Lastly, at number eight, we have compensation received by workers. Most of them, which fall under job-related injuries or ailments, are not taxable. However, if you also receive Social Security disability benefits, a portion may be taxable.
Therefore, even though we all feel like every dollar we earn goes to the IRS in taxes, it’s not always true. The tax codes in America actually include several types of income that are legally exempt from tax. However, many citizens aren’t aware of these benefits, and because of this, they end up paying much more money than required.
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Please read through this article carefully and do thorough research to know about these exemptions, which can save you quite a bit. Also, do not hesitate to reach out to the IRS in case of any questions or doubts about it. Be aware of major potential scams, and remember, if you don’t care about your money, your money won’t care for you!
