14 Types of Payments You May Have Received in 2022 That Aren’t Taxable

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Even though federal tax rates in the United States are relatively low compared with many countries in the world, Americans often feel like they are overtaxed. No matter what type of money may come in, it may feel as if there’s no way to avoid the government from taking its cut.

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The truth, however, is that there are many types of payments you may receive that are actually tax-free. As tax season begins coming into view, it pays to look at the money you’ve received throughout 2022 and start determining which payments are taxable and which are not. Here’s a quick list of the main types of payments you may have received that you can keep all to yourself.

Inherited Money

Money you receive from an inheritance is always tax-free, at least on the federal level. Six states — Iowa, Kentucky, Nebraska, New Jersey, Pennsylvania and Maryland — do have their own inheritance taxes, but in many cases they only apply to multi-million-dollar estates.

In extremely rare circumstances, very large bequests may trigger a federal estate tax, but that is not paid by the recipient.

Life Insurance Death Benefits

The death benefit portion of any life insurance proceeds you may receive are tax-exempt. However, if you receive any interest payments, those may be taxable.

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Municipal Bond Income

One of the primary reasons investors purchase municipal bonds is that their interest is federally tax-free. It’s also typically tax-exempt for residents of the state of issue.

Child Support

Payments for child support aren’t deductible for the payer, thus they are not taxable to the recipient.

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Disaster Aid

If you received any disaster relief from the government — typically in the form of FEMA disaster grants — that money is not taxable.

Gifts

Gifts are always tax-free to the recipient. If the amount of the gift exceeds certain limits, however, the benefactor may be liable for gift tax.

Proceeds From the Sale of a Principal Residence (Up to a Certain Amount)

If you sell a principal residence that you have lived in for at least two of the past five years, you won’t have to pay any taxes on capital gains of up to $250,000 for an individual or $500,000 for a married couple filing jointly. Excess gains, or those that don’t meet the holding period requirements, are taxed as ordinary capital gains.

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Roth IRA Distributions

Qualified Roth distributions are tax-free. A qualified distribution generally must occur after age 59 ½ and more than five years after the first contribution was made to the account. Distributions due to death or disability also qualify.

Disability Insurance Payments

The federal government doesn’t tax any payments you may receive from disability insurance that you pay for yourself. However, if your employer pays for some or all of your insurance, then those amounts are considered taxable income. Workers’ compensation payments, however, are tax-free.

Social Security Benefits (Below Certain Limits)

In reality, between 50% and 85% of most Social Security distributions are actually taxable. But if you earn below certain limits, your benefits will be tax-free. For 2022, those limits are $25,000 for singles and $32,000 for joint filers.

HSA Distributions (for Qualified Expenses)

Qualified Health Savings Account distributions that are used to pay qualifying medical expenses are tax-free. However, if you use money in your HSA for any other purpose, you’ll have to pay both ordinary income tax on the payout and a 20% penalty.

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Alimony Payments

Alimony payments used to be taxable to the recipient, but that all changed in 2019. Under the new law, alimony payments made under divorce or separation instruments executed after Dec. 31, 2018 are neither deductible by the payer nor taxable to the recipient.

Employer-Provided Adoption Expenses

If your employer provides assistance with your adoption expenses, those payments are not taxable.

Welfare Payments

Welfare payments are not taxable to recipients.

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About the Author

After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.
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