9 Types of Income That Are Not Taxable in 2025
Written by
Caitlyn Moorhead
Edited by
Ashleigh Ray
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No matter what line of work you happen to find yourself in, you know that the government takes a bite out of your paycheck on a state and federal level. What’s less commonly known, however, is that nine bona fide types of income are non-taxable. This could help you when it comes to your filing status.
You don’t need to be a CPA to keep these earnings tax-free. Here’s a handy-dandy review of all the non-taxable incomes for which you might be eligible in 2025.
Roth IRA Distributions: Variations on Retirement Income
When it comes to retirement planning, there are many options including 401(k) plans, traditional individual retirement accounts (IRAS), or Roth IRAs. However, your retirement savings and fixed income can be greatly affected as to how those distributions are taxed.
The good news is that unlike traditional IRAs, Roth IRA contributions are taxed upfront instead of at the back end. This makes these distributions a form of non-taxable income.
Inheritances: ‘Tis Better To Give Than Receive
Did you know that most gifts, bequests and inheritances can go right into your bank account, and you don’t have to worry about the tax collector coming by to ask for a piece of the pie? Now that’s a present to keep in mind.
You might be wondering — if you aren’t paying the taxes on a gift, then who is? According to the IRS, the answer is, “the donor is generally responsible for paying the gift tax. Under special arrangements, the donor may agree to pay the tax instead.”
For long-term planning where estate taxes are concerned, this is good to know for both the benefactor and beneficiary. Thanks for the gift that keeps giving, Uncle Sam.
Child Support: Latchkey Could Mean Tax-Free
Being a parent is tough these days and sometimes it can put a strain on a partnership. When divorce or separation happens and there are kids involved, most likely one of the parents will be contributing child support payments. If you are the parent receiving those funds, breathe easy … because they are non-taxable.
Child support falls under the category of a “tax-neutral” event. Essentially, since the parent paying child support is theoretically paying money to cover basic living expenses for their child, child support isn’t a tax-deductible expense. This is one less thing to have to worry about as a parent who receives monetary support while raising children.
Cash Rebates: Price Reductions Are King
Everyone loves cash and wouldn’t mind more of it, but how many people are really taking advantage of cash rebates that are given out to customers from manufacturers or dealerships? Fortunately, a rebate is not subject to tax.
Rebates are considered a reduction of the item’s price and work in the same way as a direct discount. Therefore, they are tax-exempt as you already covered that cost in your original purchase. But keep an eye on the fine print — rebates can sometimes come with other strings attached, and you’ll want to know what you are signing up for before you spend the money.
Insurance Provided by Your Employer: To Your Health!
Here’s just what the doctor ordered: most — emphasis on most — health benefits are not able to be taxed. Though the Affordable Care Act is currently under attack by the Trump administration, it still does not classify health insurance as income which is subject to a tax. This includes employer-provided benefits as well as life insurance proceeds.
However, for your medical expenses, keep in mind that depending on what your health insurance policy is, many of the benefits covered are taxable. Check with your insurance company about how this might affect you when it comes time to file your taxes so your heart doesn’t skip a beat or two.
Alimony: Payer vs. Payer
The definition of “alimony” from the IRS is, “Amounts paid to a spouse or a former spouse under a divorce or separation instrument (including a divorce decree, a separate maintenance decree, or a written separation agreement) may be alimony or separate maintenance payments for federal tax purposes.”
The tax laws have changed a lot and depending on when a divorce occurred, it could determine who pays whom and how much. Any separation or divorce finalized on or before December 31, 2018, means that the person who receives the alimony money would pay federal income tax. However, since Jan. 1, 2019, those tax bills are now owed by the party in the separation or divorce who is making the alimony payments.
Welfare Benefits: All Is Fair With Welfare
Welfare or other federal financial assistance programs help millions of Americans receive benefits every year, including Social Security, Aid to Families with Dependent Children (AFDC), food stamps and other forms of social welfare. If you are receiving these or other benefits, they typically don’t carry the federal, state or local tax burden.
Ask a certified accountant if you should include welfare payments when you file your taxes, in case you should be subject to an audit down the road.
Adoption Assistance: FYI on QAEs
Qualified adoption expenses, commonly referred to as QAEs in the tax world, are necessary costs that you pay to adopt a child younger than 18 years of age or any disabled person who requires care. The IRS classifies expenses such as fees related to the adoption, attorney costs, court fees, travel, and several others as QAE, so long as they are “reasonable” and “necessary.”
Veterans’ Benefits: Tax Free for Your Service
Veterans have already given so much, the least Uncle Sam can do is leave their benefits alone come tax time. That’s why several key benefits paid to veterans and their families are generally untouched.
These benefits include basics like allowances for education, training and subsistence. They also cover special causes, such as employee compensation and pension payments for a disability, as well as insurance proceeds and dividends paid either to veterans or to their beneficiaries. A qualified financial professional can help you walk through which veterans’ benefits you should not have to pay taxes on.
Jake Arky contributed to the reporting for this article.
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