What income is not taxed?

Income you received throughout the year is either taxable or nontaxable. Nontaxable income would not be taxed, even if you report it on your tax return.



The IRS deems the following forms of income not subject to tax.


  • Life insurance payments

Every insured individual has a set life insurance policy and this amount is nontaxable. If you receive a cash payment that exceeds the life insurance policy, however, the amount exceeding the policy is taxable.


  • Grants from qualified scholarships

If you used your scholarship grant to purchase textbooks or pay for your tuition is nontaxable, however, any amount used for room and boarding is taxable.


  • Disability Income

If you paid premiums yourself, you do not pay taxes on disability income.


  • Worker’s Compensation

If you receive payments due to a work-related illness or physical injury, this income is exempt from taxes.


  • Social Security

If you rely on Social Security benefits, 85% will be subject to tax if your income is above the limit.


  • Employer-Sponsored Insurance


  • Veteran’s Benefits

Veterans and their families are paid benefits that are deemed nontaxable. This includes education, training, allowances, compensation for disability, work therapy programs, pension, grants for homes and vehicles, insurance, interest on dividends, dependent-care assistance program, death gratuity and bonuses provided by state and subdivisions.


  • Combat Pay

You must be stationed in a combat zone.


  • Alimony and Child Support


  • Welfare Benefits


  • Cash rebates from an item purchased from a dealer or manufacturer


  • Reimbursements from qualified adoption expenses


  • Disaster Relief Grants

Any payments received after a natural disaster to support your essential needs such medical, dental, housing, personal property, and transportation is deemed exempt from taxes.


  • Monetary gifts, bequests, and inheritances

The gift must be under the gift tax limit or the giver may owe gift tax.

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