What everyone should know

Wouldn’t it be nice to have a source of nontaxable income? You may be more fortunate than you realize. Listed here are a number of income items that the IRS does not tax.

1. Tax-free interest. Municipal bond interest is tax-free at the federal level. This includes bonds issued by a state or municipality. The tax-free benefit increases the higher your income, but caution must be taken to ensure the underlying municipality is not in dire financial condition.

2. Health insurance premiums. Health insurance premiums are tax-free. There is constant talk abou changing this, but for now this benefit can be paid in pre-tax dollars for most people.

3. Income from Roth IRA and Roth 401(k) accounts. While the amounts contributed to these retirement savings accounts is taxed, any future earnings made on these contributions is tax-free at the federal level as long as the holding period and distribution rules are followed.

4. Health Spending Accounts (HSA). Contributions and earnings in these health-related spending accounts are tax-free as long as the proceeds in the account are used to pay for qualified health care expenses.

5. Child support received. Unlike alimony received, child support income is federally tax-free.

6. Car pool revenue. While commuting expenses are not generally deductible, any reimbursement of your commuting expenses by fellow passengers is not reportable as income.

7. Home sale gains. Up to $250,000 ($500,000 for married filing jointly) of capital gains on a sale of your principal residence can be tax-free.

8. Tax-free tips. Beginning in 2025 and going through 2028, up to $25,000 of your tip income (single or married filing joint) can be excluded from income. While the deduction cannot exceed your reported income, it phases out at a generous $150,000 ($300,000 joint). But you better be prepared to prove it with a proper W-2, 1099, or Form 4137.

9. Tax-free overtime. Also running from 2025 through 2028, up to $12,500 ($25,000 for joint filers) of the overtime portion of your pay is not taxed. It is available with the same income phaseouts as noted within tax-free tips.

10. Certain employer compensation. In addition to health care premiums, there are a number of employee benefits that are not taxable. All have limits, but every tax-free dollar is money in your pocket. These include most airline miles earned on business credit card expenses, certain employee-provided tuition expenses, qualified adoption expense reimbursements, up to $50,000 in employer-paid term life insurance, flexible spending accounts for dependent care and health care, and commuting expense benefits for parking and mass transit commuting.

Remember, any time you can pay for something using pre-tax dollars, it’s like giving yourself a raise! So ensure you’re taking advantage of all your federal tax-free income opportunities.

Category: Your Income	Published: 03/13/2026