Five Types of Income the IRS Cannot Touch

You might think that anything considered income is taxable. This is a myth. There are over a dozen types of income that the IRS cannot tax, and five of the most common are briefly discussed here.

Veterans Income

Income earned while working for the Federal government in the Military is not taxable once you have veteran status. Benefits paid to veterans’ families are also non-taxable. Education allowances, disability compensation, and grants for homes are also non-taxable.

Welfare Payments

Monies paid to you from a state-funded program, such as cash assistance and food assistance, are not taxed by the IRS. You will receive statements, and these should be kept for your records. In case of audit, these documents will be requested.

Child Support & Foster Care Payments

If you receive child support from a biological parent or foster care payments from the state, that income is tax-free. The child’s biological parent is already paying taxes on his or her income before it is distributed to you.

Worker’s Compensation Income

The Worker’s Compensation Act protects the income of injured workers from being taxed. You are unable to earn your regular income, and worker’s compensation is often less than your regular wage. A wage statement may be sent by worker’s compensation for your records.

Inheritances

The estate of your deceased loved one pays taxes. State taxes may be required on some inheritances. You will receive a form to file with your taxes, but this income cannot be taxed.

Final Thoughts

If you are unsure if you should report your income, view the IRS’ list of non-taxable income sources. A tax preparation specialist can answer additional questions. Don’t report income that you don’t have to.

Image credit: Ray Tsang