{"id":6863,"date":"2023-03-08T10:52:40","date_gmt":"2023-03-08T10:52:40","guid":{"rendered":"https:\/\/www.irstaxapp.com\/?p=6863"},"modified":"2023-03-08T10:52:49","modified_gmt":"2023-03-08T10:52:49","slug":"income-exempt-from-taxes","status":"publish","type":"post","link":"https:\/\/www.irstaxapp.com\/income-exempt-from-taxes\/","title":{"rendered":"List of Income Exempt From Taxes &#8211; Fed &#038; States Both"},"content":{"rendered":"\n<figure class=\"wp-block-image size-large is-resized\"><picture><source srcset=\"https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/03\/tax-exempt-income-2-1024x576.webp 1024w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/03\/tax-exempt-income-2-300x169.webp 300w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/03\/tax-exempt-income-2-768x432.webp 768w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/03\/tax-exempt-income-2-1536x864.webp 1536w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/03\/tax-exempt-income-2-150x84.webp 150w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/03\/tax-exempt-income-2-750x422.webp 750w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/03\/tax-exempt-income-2-1140x641.webp 1140w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/03\/tax-exempt-income-2.webp 1920w\" sizes=\"(max-width: 1121px) 100vw, 1121px\" type=\"image\/webp\"><img src=\"https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/03\/tax-exempt-income-2-1024x576.png\" height=\"631\" width=\"1121\" srcset=\"https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/03\/tax-exempt-income-2-1024x576.png 1024w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/03\/tax-exempt-income-2-300x169.png 300w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/03\/tax-exempt-income-2-768x432.png 768w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/03\/tax-exempt-income-2-1536x864.png 1536w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/03\/tax-exempt-income-2-150x84.png 150w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/03\/tax-exempt-income-2-750x422.png 750w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/03\/tax-exempt-income-2-1140x641.png 1140w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2023\/03\/tax-exempt-income-2.png 1920w\" sizes=\"(max-width: 1121px) 100vw, 1121px\" class=\"wp-image-6866 sp-no-webp\" alt=\"exempt from taxes\" decoding=\"async\" loading=\"lazy\"  > <\/picture><\/figure>\n\n\n\n<p>List of twelve  types of income that are <em>exempt from taxes <\/em>&#8211; both under federal tax law (Internal Revenue Code ) and state tax laws should always be checked while filing tax return. Tax exempt means  an  income or transactions that are not considered taxable income under the Federal tax law .Please note that these income may be taxed by some states , but majority of states have tax exempt the income. We have included information about states that tax these income .<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_62 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6629d9d4ea0ff\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6629d9d4ea0ff\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.irstaxapp.com\/income-exempt-from-taxes\/#Video_Income_Exempt_from_Taxes\" title=\"Video : Income Exempt from Taxes\">Video : Income Exempt from Taxes<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.irstaxapp.com\/income-exempt-from-taxes\/#1Interest_received_on_the_municipal_bond_is_exempt_from_taxes\" title=\"1.Interest received on the municipal bond\u00a0is exempt from taxes\">1.Interest received on the municipal bond\u00a0is exempt from taxes<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.irstaxapp.com\/income-exempt-from-taxes\/#2Certain_Veterans_benefits_are_exempt_from_taxes\" title=\"2.Certain Veterans&#8217; benefits are exempt&nbsp;from taxes\">2.Certain Veterans&#8217; benefits are exempt&nbsp;from taxes<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.irstaxapp.com\/income-exempt-from-taxes\/#3Life_insurance_proceeds_are_exempt_from_taxes\" title=\"3.Life insurance proceeds are exempt from taxes\">3.Life insurance proceeds are exempt from taxes<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.irstaxapp.com\/income-exempt-from-taxes\/#4Gifts_and_inheritances_tax_exempt_for_recipients\" title=\"4.Gifts and inheritances tax exempt for recipients\">4.Gifts and inheritances tax exempt for recipients<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.irstaxapp.com\/income-exempt-from-taxes\/#5Workers_compensation\" title=\"5.Workers&#8217; compensation\">5.Workers&#8217; compensation<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.irstaxapp.com\/income-exempt-from-taxes\/#6Roth_IRA_distributions_after_5_years\" title=\"6.Roth IRA distributions after 5 years \">6.Roth IRA distributions after 5 years <\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.irstaxapp.com\/income-exempt-from-taxes\/#7Child_support_payments_are_tax_exempt\" title=\"7.Child support payments are tax exempt\">7.Child support payments are tax exempt<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.irstaxapp.com\/income-exempt-from-taxes\/#8Qualified_tuition_assistance\" title=\"8.Qualified tuition assistance\">8.Qualified tuition assistance<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.irstaxapp.com\/income-exempt-from-taxes\/#9Qualified_retirement_plan_distributions\" title=\"9.Qualified retirement plan distributions\">9.Qualified retirement plan distributions<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/www.irstaxapp.com\/income-exempt-from-taxes\/#10Disability_insurance_benefits_are_exempt_from_taxes\" title=\"10.Disability insurance benefits are exempt from taxes\">10.Disability insurance benefits are exempt from taxes<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/www.irstaxapp.com\/income-exempt-from-taxes\/#11Certain_types_of_damages\" title=\"11.Certain types of damages&nbsp;\">11.Certain types of damages&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/www.irstaxapp.com\/income-exempt-from-taxes\/#12Certain_types_of_foreign_income_are_exempt_from_taxes\" title=\"12.Certain types of foreign income are exempt from taxes\">12.Certain types of foreign income are exempt from taxes<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Video_Income_Exempt_from_Taxes\"><\/span>Video : Income Exempt from Taxes<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<figure class=\"wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio\"><div class=\"wp-block-embed__wrapper\">\n<div class=\"jeg_video_container jeg_video_content\"><iframe loading=\"lazy\" title=\"Twelve tax exempt income by Fed &amp; States\" width=\"500\" height=\"281\" src=\"https:\/\/www.youtube.com\/embed\/9KO8TjwRKPQ?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" allowfullscreen><\/iframe><\/div>\n<\/div><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"1Interest_received_on_the_municipal_bond_is_exempt_from_taxes\"><\/span>1.Interest received on the municipal bond\u00a0is exempt from taxes<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ol><li>As per <a href=\"https:\/\/www.law.cornell.edu\/uscode\/text\/26\/103\" target=\"_blank\" rel=\"noopener\">section 103 of the Internal Revenue Code (IRC)<\/a>, interest income earned from bonds issued by state and local governments is not taxed under federal law and may also be exempt from state income tax. However, there are certain exceptions to this general rule, such as for private activity bonds or bonds issued for certain purposes. <\/li><li>Here is a list where interest from <strong>bonds is not tax free under IRC.<\/strong><ol><li><strong>Taxable municipal bonds:<\/strong>&nbsp;Some municipal bonds are issued with taxable interest instead of tax-exempt interest. Taxable municipal bonds are subject to federal income tax.<\/li><li><strong>Private activity bonds:&nbsp;<\/strong>Certain municipal bonds issued for private projects, such as housing developments or airports, are subject to federal income tax.&nbsp;<\/li><li><strong>Build America Bonds:<\/strong>&nbsp;Build America Bonds (BABs) are taxable municipal bonds issued under the American Recovery and Reinvestment Act of 2009. BABs offer a subsidy to issuers through a federal tax credit or direct payment instead of tax-exempt interest.<\/li><li><strong>Taxable bond funds:&nbsp;<\/strong>Some mutual and exchange-traded funds (ETFs) invest in taxable bonds, including municipal bonds offering taxable interest.&nbsp;<\/li><\/ol><\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"2Certain_Veterans_benefits_are_exempt_from_taxes\"><\/span>2.Certain Veterans&#8217; benefits are exempt&nbsp;from taxes<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Only certain veterans&#8217; benefits, such as disability compensation and pension payments, are exempt from federal income tax and may also be exempt from most states. The exemption to veterans is guided by Section 104 of the IRC. However, certain states taxes veterans&#8217; benefits of disability compensation and pension payments as well.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"3Life_insurance_proceeds_are_exempt_from_taxes\"><\/span>3.Life insurance proceeds are exempt from taxes<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><a href=\"https:\/\/www.irs.gov\/pub\/irs-drop\/rr-07-13.pdf\" target=\"_blank\" rel=\"noopener\">Section 101(a) of the IRC<\/a> generally exempts the proceeds from a life insurance policy. However, if the policy was transferred for consideration, part of the proceeds may be subject to federal tax.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"4Gifts_and_inheritances_tax_exempt_for_recipients\"><\/span>4.Gifts and inheritances tax exempt for recipients<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><a href=\"https:\/\/www.irstaxapp.com\/form-3520-gifts-or-bequests-received\/\">Gifts <\/a>and inheritances are generally not considered taxable income; this exemption is provided under <strong>section 102 of the IRC.<\/strong> However, if the <a href=\"https:\/\/www.irstaxapp.com\/inheritance-tax-who-why-how\/\">gift or inheritance <\/a>is in the form of property that generates income, such as rental property or stocks, the income may be subject to taxation.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"5Workers_compensation\"><\/span>5.Workers&#8217; compensation<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>As per section 104(a)(1) of the IRC, payments received as workers&#8217; compensation benefits are generally not taxable. However, if the compensation amounts are for something other than a work-related injury or illness, such as emotional distress or defamation, they may be subject to taxation.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"6Roth_IRA_distributions_after_5_years\"><\/span>6.Roth IRA distributions after 5 years <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Distributions from a Roth IRA are generally tax-free if the account has been open for at least five years and the account owner is at least 59\u00bd years old. This exemption is provided under Section 408A of the IRC. However, if the account has not been open for at least five years or is not qualified, it may be subject to taxation.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"7Child_support_payments_are_tax_exempt\"><\/span>7.Child support payments are tax exempt<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><a href=\"https:\/\/www.irstaxapp.com\/foster-care-payments-taxable\/\">Child support payments<\/a> are generally not taxable; this exemption is provided under Section 71(c)(1) of the IRC. However, if the payments are designated as something other than child support, such as alimony or property settlement, they may be subject to taxation.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"8Qualified_tuition_assistance\"><\/span>8.Qualified tuition assistance<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Section 127 of the IRC exempts amounts of employer-provided tuition assistance for undergraduate or graduate-level courses, and up to $5,250 may also be exempt from state and local income tax.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"9Qualified_retirement_plan_distributions\"><\/span>9.Qualified retirement plan distributions<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Distributions from qualified retirement plans such as 401(k) plans, IRAs, and pension plans are generally taxable as income. However, suppose the distribution is qualified, meaning it meets certain requirements, such as being made after the account holder reaches age 59 \u00bd. In that case, it may be exempt from federal, state, and local income tax. This exemption is provided under various sections of the IRC, such as Section 402(a) for qualified employer plans and Section 408(d) for IRAs.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"10Disability_insurance_benefits_are_exempt_from_taxes\"><\/span>10.Disability insurance benefits are exempt from taxes<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Disability insurance benefits paid to an individual due to a disability may be exempt from federal income tax, and they may also be exempt from state and local income tax. This exemption is provided under Section 105 of the IRC.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"11Certain_types_of_damages\"><\/span>11.Certain types of damages&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Section 104(a)(2) of the IRC exempts certain damages an individual receives, such as compensatory damages for physical injury or sickness. These damage payments may also be exempt from state and local income tax.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"12Certain_types_of_foreign_income_are_exempt_from_taxes\"><\/span>12.Certain types of foreign income are exempt from taxes<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Certain types of income earned by U.S. citizens or residents while living and working abroad, such as <a href=\"https:\/\/www.irstaxapp.com\/foreign-earned-income-exclusion\/\">foreign earned income<\/a> and housing allowances, may be exempt from federal income tax and states and local income tax. Refer to section 911 of the IRC for.<\/p>\n\n\n\n<p>It is important to note that state and local tax laws may vary and may provide different exemptions or exclusions from income tax. Therefore, before you consider an income as <strong><em>exempt from taxes<\/em><\/strong>, consulting with a <a href=\"https:\/\/www.irstaxapp.com\/tax-attorney-vs-cpa\/\">tax attorney <\/a>or tax professionals like CPAs for specific guidance on your individual tax situation.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>List of twelve types of income that are exempt from taxes &#8211; both under federal tax law (Internal Revenue Code ) and state tax laws should always be checked while filing tax return. Tax exempt means an income or transactions that are not considered taxable income under the Federal tax law .Please note that these [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":6866,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[54],"tags":[],"amp_enabled":false,"_links":{"self":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts\/6863"}],"collection":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/comments?post=6863"}],"version-history":[{"count":5,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts\/6863\/revisions"}],"predecessor-version":[{"id":6872,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts\/6863\/revisions\/6872"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/media\/6866"}],"wp:attachment":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/media?parent=6863"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/categories?post=6863"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/tags?post=6863"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}