Most of the income you earn through investment or work is subject to state or federal income tax. However, specific categories can be exempted from this tax. Knowing about these tax-exempted incomes will help you take advantage of this provision and help you save your money. However, in some cases, the money you make can affect your tax-free situation.

Therefore, you should double-check any money you receive to determine whether it’s tax-free or consult a tax professional. Here are 10 types of income that the IRS won’t tax.

Life Insurance Payouts

If a loved one passes on and leaves a life insurance benefit, the IRS cannot tax you unless you meet certain exceptions, such as converting the amount or cashing them in. There may also be tax implications for any interest incurred from the life insurance payouts.

The IRS doesn’t tax you for accelerated benefits from a life insurance policy when you’re terminally ill. It cannot also tax you if you use that money for long-term care.

Disability Insurance Payments

The IRS might tax disability insurance benefits if the employer pays the premiums for this policy. However, the following categories of this benefit make it non-taxable:

• Benefits from supplemental disability insurance purchased through the employer with own after-tax dollars.
• Benefits from private disability insurance plans bought with after-dollar tax.
• Workers’ compensation benefits payout
• Compensatory, but not punitive damages, for physical injury or sickness, partial or complete loss of function of the body, and permanent disfigurement
• Disability benefits from a no-fault car insurance policy for loss of earning capacity or income due to the injury
• Disability benefits from the public welfare fund

Employee Benefits

The IRS exempts employer-paid premiums from tax, including part of the premiums paid by the employee. This exclusion also applies to qualified long-term care insurance contracts. However, employees under an S corporation must include their health insurance benefits if they own more than two percent of their S corporation shares.

Health Savings Accounts (HSA)

IRS exempts health savings account from taxation when an employer deposits the contribution on behalf of the employee. However, they can subject this benefit to tax if the employee contributes to it.

Workers’ Compensation

The IRS exempts workers’ compensation from taxation regardless of the injury you’re receiving the benefit for. However, employees can pay tax on this benefit in the following situations:

• When they suffer permanent injuries from their job and receive SSDI and disability benefits
• When it takes months from work to recover from an injury, Workers’ compensation covers some of their missed wages, but they receive Supplemental Security Income (SSI).

Canceled Debts

You could exclude canceled debts from taxation if they were canceled due to a bankruptcy case, qualified farm debt, or insolvency. The IRS can also exclude canceled debts from tax if it was associated with an eligible real property business or intended as a gift for your home.

Inheritance

The IRS doesn’t impose a federal inheritance tax. Therefore, you don’t have to worry about taxation on your inheritance. However, the IRS taxes any income earned through inheritance, such as dividend-paying stock.

Gifts

The IRS doesn’t impose taxes on any financial gifts, whether money or assets. However, they can impose a federal gift tax on the giver if they transfer property to the receiver, whether they will receive nothing or less than the total value of the money.

Disaster Relief Payments

The IRS excludes tax from beneficiaries received through disaster relief payments from the government or transport carrier to pay for any associated expenses. Disaster victims can use this payment to cover personal expenses, home repair, and property replacement exempted from insurance coverage.

Energy Conservation Subsidies

The IRS exempts tax from any financial thank you from a utility service provider for efforts made on energy conservation, whether a direct or indirect subsidy. This is according to Section 136 of the U.S. Code.