Are you seeking ways to grow your wealth without the taxman taking a significant cut? At income-partners.net, we understand the allure of passive income and the importance of maximizing your returns. This guide explores What Passive Income Is Not Taxed, offering insights into how you can strategically build your wealth and connect with potential partners to enhance your financial journey. Discover the opportunities waiting for you.
1. Understanding Passive Income and Taxation
Passive income, in its simplest form, is earnings derived from an enterprise in which one is not actively involved. But before diving into what passive income isn’t taxed, let’s clear on what it is.
This can include rental properties, royalties, or business ventures where you’re not putting in the daily grind. While many forms of passive income are subject to taxation, a few notable exceptions can significantly benefit your financial strategy.
What Qualifies as Passive Income?
Generally, the IRS considers income passive if it comes from two main sources:
- Rental Activities: Income earned from renting out property.
- Business Activities: Income from a business in which you don’t materially participate. “Material participation” means you’re involved in the operations of the business on a regular, continuous, and substantial basis.
Why Understand Tax-Free Passive Income?
Understanding what passive income is not taxed is crucial for several reasons:
- Maximizing Returns: By focusing on tax-advantaged income streams, you can keep more of what you earn.
- Financial Planning: Tax-free income can play a vital role in retirement planning, investment strategies, and overall financial health.
- Strategic Investing: Knowing the tax implications of different income sources can guide your investment decisions.
2. Municipal Bonds: The King of Tax-Free Passive Income
One of the most reliable ways to generate tax-free income from investments is through municipal bonds, often referred to as “munis”. Municipal bonds are debt securities issued by state and local governments to fund public projects, such as building schools, roads, and hospitals.
Municipal Bonds: Tax-Free Passive Income
How Municipal Bonds Work
When you purchase a municipal bond, you’re essentially lending money to the issuing government entity. In return, you receive periodic interest payments (usually semi-annually) and the return of your principal at the bond’s maturity date.
Tax Advantages of Municipal Bonds
The primary appeal of municipal bonds lies in their tax benefits:
- Federal Tax Exemption: Interest earned from municipal bonds is typically exempt from federal income taxes.
- State Tax Exemption: If you purchase bonds issued by your state of residence, the interest is often exempt from state and local income taxes as well.
- Triple Tax-Exempt Bonds: Some bonds are even triple tax-exempt, meaning they’re free from federal, state, and local taxes. These are usually issued by governmental entities within your state.
Example of Tax Savings
Let’s say you’re in the 32% federal tax bracket and a 5% state tax bracket. You invest $10,000 in a municipal bond yielding 4%. The annual interest income would be $400. Because of the tax exemptions, you keep the entire $400. If you had earned the same amount from a taxable investment, you’d lose $128 to federal taxes and $20 to state taxes, leaving you with only $252.
Types of Municipal Bonds
Municipal bonds come in various forms, each with its own risk and reward profile:
| Type of Bond | Description | Tax Benefits |
|---|---|---|
| General Obligation | Backed by the full faith and credit of the issuing government. | Typically exempt from federal, state, and local taxes if you reside in the issuing state. |
| Revenue Bonds | Backed by revenue generated from a specific project (e.g., a toll road or water system). | Usually exempt from federal taxes, and potentially state and local taxes if you live in the issuing state and the project is deemed essential. |
| Private Activity Bonds | Issued to finance projects that benefit private entities (e.g., industrial development). | May be subject to federal taxes under certain conditions, but still potentially exempt from state and local taxes. |
| Tax Anticipation Notes (TANs) | Short-term debt instruments used to cover immediate expenses before tax revenues are collected. | Exempt from federal taxes, and often state and local taxes, providing a quick, tax-advantaged investment. |
Investing in Municipal Bonds
You can invest in municipal bonds directly or through mutual funds and exchange-traded funds (ETFs) that specialize in municipal bonds. Each approach has its pros and cons. Direct investment requires more research and capital, while funds offer diversification and professional management.
Potential Downsides of Municipal Bonds
While municipal bonds offer attractive tax benefits, they also have potential downsides:
- Lower Yields: Compared to taxable bonds, municipal bonds typically offer lower yields due to their tax advantages.
- Credit Risk: Municipal bonds are subject to credit risk, meaning the issuer could default on its payments.
- Interest Rate Risk: Like all bonds, municipal bonds are sensitive to changes in interest rates. If rates rise, the value of your bonds may decline.
Partnering for Municipal Bond Investments
Exploring partnerships can unlock opportunities in the municipal bond market. At income-partners.net, we connect investors seeking to pool resources for larger, potentially more lucrative municipal bond projects. Partnering allows for diversification and access to expertise, mitigating some risks associated with individual investments.
3. Inheritance: A Tax-Free Windfall (Mostly)
Inheritance, the assets you receive from a deceased person, is generally not subject to federal income tax. This means you won’t have to worry about paying taxes on the cash, stocks, real estate, or other assets you inherit.
Inheritance: Tax-Free Passive Income
Federal Estate Tax
It’s important to note that while you, as the beneficiary, don’t pay income tax on your inheritance, the estate of the deceased may be subject to federal estate tax. However, the estate tax only applies to estates that exceed a certain threshold, which is quite high. For 2025, the federal estate tax exemption is $13.61 million per individual. This means that only estates worth more than $13.61 million are subject to the federal estate tax.
State Inheritance Tax
While the federal government doesn’t tax inheritances at the recipient level, some states do. As of 2025, the states that impose an inheritance tax are:
- Iowa
- Kentucky
- Nebraska
- Maryland
- New Jersey
- Pennsylvania
It’s crucial to check the laws in the state where the deceased lived to determine if any inheritance tax applies.
Stepped-Up Basis
One of the most significant tax advantages of inheriting assets is the “stepped-up basis.” This means that the basis (original cost) of the inherited asset is adjusted to its fair market value on the date of the deceased’s death.
Example of Stepped-Up Basis
Suppose your parent bought shares of stock for $10,000 years ago, and those shares are worth $50,000 on the date of their death. If you inherit those shares, your basis is stepped up to $50,000. If you sell the shares for $55,000, you’ll only pay capital gains tax on the $5,000 difference. Without the stepped-up basis, you’d have to pay capital gains tax on the entire $45,000 gain.
Potential Downsides of Inheritance
- State Inheritance Taxes: As mentioned earlier, some states impose inheritance taxes, which can reduce the amount you receive.
- Estate Taxes: Although the estate tax primarily affects very large estates, it can still reduce the overall inheritance.
- Tax Implications of Inherited Retirement Accounts: Inherited retirement accounts (like 401(k)s and IRAs) have specific tax rules that you need to understand. Generally, you’ll have to pay income tax on distributions from these accounts.
Strategic Planning with Inheritance
While you can’t predict when you’ll receive an inheritance, you can plan for it. Consult with a financial advisor and tax professional to understand the tax implications and develop a strategy for managing the inherited assets effectively.
How Income-Partners.net Can Help
Navigating the complexities of inherited wealth requires careful planning. Income-partners.net offers resources and connections to financial advisors specializing in estate planning and wealth management. By partnering with experienced professionals, you can optimize your inheritance and secure your financial future.
4. Life Insurance Proceeds: A Tax-Free Safety Net
Life insurance provides a financial safety net for your loved ones in the event of your death. Fortunately, the proceeds from a life insurance policy are generally tax-free to the beneficiary.
Life Insurance Proceeds: Tax-Free Passive Income
Tax-Free Death Benefit
When you receive the death benefit from a life insurance policy, you typically don’t have to pay income tax on the proceeds. This is true whether you receive the benefit as a lump sum or in installments.
Tax Implications of Cashing Out a Policy
While the death benefit is tax-free, cashing out a life insurance policy before death can have tax implications. If you surrender the policy, the amount you receive above your basis (the total premiums you paid) is taxable as ordinary income.
Example of Taxable Cash Value
Let’s say you paid $20,000 in premiums for a life insurance policy, and the cash value has grown to $30,000. If you surrender the policy, the $10,000 difference is taxable as ordinary income.
Exceptions to the Tax-Free Rule
There are a few exceptions to the general rule that life insurance proceeds are tax-free:
- Transfer for Value: If the life insurance policy was transferred to you for valuable consideration (e.g., you bought it from someone), the death benefit may be taxable.
- Estate Tax: As with other assets, life insurance proceeds may be included in the deceased’s estate and subject to estate tax if the estate exceeds the exemption threshold.
Using Life Insurance for Estate Planning
Life insurance can be a valuable tool for estate planning. It can provide liquidity to pay estate taxes, fund trusts, and ensure that your loved ones are financially secure.
Partnering for Life Insurance Solutions
Choosing the right life insurance policy is a crucial financial decision. Income-partners.net connects individuals with insurance professionals who can assess their needs and provide tailored solutions. Partnering with experienced advisors ensures that you have the right coverage to protect your family and minimize potential tax implications.
5. Disability Payments: Taxable or Not?
Disability payments are designed to provide income replacement if you become unable to work due to illness or injury. Whether these payments are taxable depends on who paid the premiums.
Disability Payments: Taxable or Not
Taxable Disability Payments
If your employer pays for your disability insurance premiums, the disability payments you receive are generally taxable as ordinary income. This is because the IRS considers these payments to be a substitute for wages.
Tax-Free Disability Payments
If you pay for your disability insurance premiums with after-tax dollars, the disability payments you receive are typically tax-free. This is because you’ve already paid taxes on the money used to purchase the insurance.
Example of Taxable vs. Tax-Free
Let’s say you receive $2,000 per month in disability payments. If your employer paid for the insurance, you’ll have to include that $2,000 in your taxable income. If you paid for the insurance yourself, the $2,000 is tax-free.
Hybrid Situations
In some cases, you and your employer may share the cost of the disability insurance premiums. In this situation, the portion of the disability payments attributable to your employer’s contributions is taxable, while the portion attributable to your contributions is tax-free.
Claiming a Tax Deduction
If you’re self-employed, you may be able to deduct the cost of your disability insurance premiums as a business expense. This can help reduce your overall tax burden.
Navigating Disability Insurance
Understanding the tax implications of disability insurance is essential for financial planning. Consult with a tax professional to determine how your disability payments will be taxed and to explore strategies for minimizing your tax liability.
Connecting with Disability Insurance Experts
Income-partners.net connects individuals with insurance professionals who can help them understand the intricacies of disability insurance and choose the right policy for their needs. Partnering with experienced advisors ensures that you have adequate coverage and that you’re prepared for potential tax implications.
6. Gifts: Always Tax-Free to the Recipient
Gifts, whether cash, property, or other assets, are never taxable to the recipient. However, gifts may have tax implications for the giver.
Gifts: Always Tax-Free to the Recipient
Gift Tax
The federal gift tax is a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return. The gift tax is designed to prevent people from avoiding estate tax by giving away their assets before death.
Annual Gift Tax Exclusion
The IRS allows you to give away a certain amount of money each year without having to pay gift tax. This is known as the annual gift tax exclusion. For 2024, the annual gift tax exclusion is $18,000 per recipient. For 2025, the annual gift tax exclusion is $19,000 per recipient.
Example of Annual Gift Exclusion
You can give each of your children, grandchildren, and friends up to $18,000 in 2024 (or $19,000 in 2025) without having to file a gift tax return or pay gift tax.
Lifetime Gift Tax Exemption
In addition to the annual gift tax exclusion, you also have a lifetime gift tax exemption. This is the total amount you can give away during your lifetime without paying gift tax. The lifetime gift tax exemption is the same as the estate tax exemption. For 2025, the lifetime gift tax exemption is $13.61 million per individual.
Gift Splitting
Married couples can elect to “split” gifts, which effectively doubles the annual gift tax exclusion. This means that a married couple can give up to $36,000 in 2024 (or $38,000 in 2025) to each recipient without having to pay gift tax.
Gifts vs. Loans
It’s important to distinguish between gifts and loans. Loans are not subject to gift tax as long as they are bona fide loans with a reasonable expectation of repayment. However, if a loan is made with no intention of repayment, it may be treated as a gift by the IRS.
Strategic Gift Giving
Gift giving can be a valuable tool for estate planning. By making use of the annual gift tax exclusion and lifetime gift tax exemption, you can reduce the size of your estate and minimize potential estate taxes.
Connecting with Estate Planning Professionals
Income-partners.net can connect you with experienced estate planning professionals who can help you develop a gifting strategy that aligns with your financial goals and minimizes your tax liability.
7. Alimony: Tax Rules Changed in 2019
The tax treatment of alimony changed significantly in 2019 due to the Tax Cuts and Jobs Act of 2017. For divorce or separation agreements executed after December 31, 2018, alimony is no longer deductible by the payer and is not included in the recipient’s taxable income.
Alimony: Tax Rules Changed in 2019
Pre-2019 Agreements
If your divorce or separation agreement was executed before January 1, 2019, the old rules apply. Under the old rules, alimony was deductible by the payer and taxable to the recipient.
Impact of the Change
The change in the tax treatment of alimony has had a significant impact on divorce negotiations. Because alimony is no longer deductible, the payer has less incentive to agree to higher alimony payments. Conversely, the recipient doesn’t have to pay taxes on the alimony, which may make them more willing to accept a lower amount.
State Laws
While the federal tax law changed in 2019, some states may still have their own rules regarding alimony. It’s essential to check the laws in your state to understand the tax implications of alimony.
Alternatives to Alimony
In some cases, divorcing couples may consider alternatives to alimony, such as property settlements or lump-sum payments. These alternatives may have different tax implications than alimony.
Navigating Divorce and Finances
Divorce can be a complex and emotionally challenging process, especially when it comes to finances. It’s essential to seek legal and financial advice to understand your rights and obligations and to develop a strategy that protects your financial future.
Connecting with Divorce Financial Planners
Income-partners.net can connect you with experienced divorce financial planners who can help you navigate the financial aspects of divorce and develop a plan for your post-divorce financial life.
8. Child Support: Never Taxable
Child support payments are never taxable to the recipient and are not deductible by the payer. This has been the rule for many years and remains unchanged.
Child Support: Never Taxable
Purpose of Child Support
Child support is intended to cover the costs of raising a child, such as food, clothing, shelter, and education. The IRS does not consider child support to be income to the recipient because it is used to benefit the child, not the parent.
Distinguishing Child Support from Alimony
It’s important to distinguish child support from alimony. Alimony is intended to support the ex-spouse, while child support is intended to support the child. As discussed earlier, the tax treatment of alimony changed in 2019, while the tax treatment of child support remains the same.
State Laws
Child support laws vary by state. Each state has its own guidelines for calculating child support payments. These guidelines typically take into account the income of both parents, the number of children, and other relevant factors.
Modifying Child Support Orders
Child support orders can be modified if there is a significant change in circumstances, such as a change in income or custody arrangements.
Ensuring Financial Security for Children
Child support plays a crucial role in ensuring the financial security of children after a divorce or separation. It helps to provide them with the resources they need to thrive.
Connecting with Family Law Attorneys
Income-partners.net can connect you with experienced family law attorneys who can help you navigate the legal aspects of child support and ensure that your children’s financial needs are met.
9. Roth IRA Withdrawals: Tax-Free in Retirement
Roth IRAs offer a unique tax advantage: qualified withdrawals in retirement are tax-free. This can be a significant benefit for those who expect to be in a higher tax bracket in retirement.
Roth IRA Withdrawals: Tax-Free in Retirement
How Roth IRAs Work
Roth IRAs are retirement accounts that are funded with after-tax dollars. This means that you don’t get a tax deduction for your contributions, but your qualified withdrawals in retirement are tax-free.
Qualified Withdrawals
To be considered a qualified withdrawal, you must meet two requirements:
- You must be at least 59 1/2 years old.
- The Roth IRA must have been open for at least five years.
If you meet these requirements, your withdrawals of contributions and earnings are tax-free and penalty-free.
Non-Qualified Withdrawals
If you don’t meet the requirements for a qualified withdrawal, your withdrawals may be subject to income tax and a 10% penalty. However, you can always withdraw your contributions tax-free and penalty-free.
Example of Tax-Free Withdrawals
Let’s say you contribute $6,500 per year to a Roth IRA for 30 years. Your contributions total $195,000, and your account grows to $500,000. When you retire, you can withdraw the entire $500,000 tax-free.
Roth Conversions
Another way to get money into a Roth IRA is through a Roth conversion. This involves converting a traditional IRA to a Roth IRA. The amount you convert is taxable as ordinary income, but all future growth and withdrawals are tax-free.
Strategic Retirement Planning
Roth IRAs can be a valuable tool for retirement planning. They offer tax-free growth and withdrawals, which can help you maximize your retirement income.
Connecting with Retirement Planning Professionals
Income-partners.net can connect you with experienced retirement planning professionals who can help you determine if a Roth IRA is right for you and develop a retirement plan that meets your financial goals.
10. Disaster Mitigation Payments: Help When You Need It Most
If you suffer through a disaster, such as a hurricane, flood, or wildfire, your state or local government may provide you with a disaster mitigation payment. These payments are generally not considered taxable income.
Disaster Mitigation Payments: Help When You Need It Most
Purpose of Disaster Mitigation Payments
Disaster mitigation payments are intended to help you recover from a disaster and rebuild your life. They may be used to cover expenses such as temporary housing, food, clothing, and repairs to your home.
Federal Disaster Assistance
In addition to state and local disaster assistance, you may also be eligible for federal disaster assistance from FEMA (Federal Emergency Management Agency). This assistance may include grants, loans, and other forms of support.
Tax Implications of Disaster Relief
Generally, disaster relief payments from government agencies and qualified charities are not taxable. However, there are some exceptions. For example, if you receive insurance payments for damage to your property, those payments may be taxable to the extent they exceed your basis in the property.
Record Keeping
It’s essential to keep good records of all disaster-related expenses and payments. This will help you when filing your taxes and claiming any available deductions or credits.
Seeking Professional Assistance
Navigating the complexities of disaster relief and taxes can be challenging. It’s best to seek professional assistance from a tax advisor or financial planner who can help you understand your rights and obligations.
Connecting with Financial Recovery Experts
Income-partners.net can connect you with financial recovery experts who can help you navigate the financial challenges of recovering from a disaster and develop a plan for rebuilding your financial life.
11. Qualifying Adoption Reimbursements: Tax Benefits for Growing Families
Adoption can be an expensive process, but the government offers several tax benefits to help offset the costs. One of these benefits is the exclusion from income for employer-provided adoption assistance payments.
Qualifying Adoption Reimbursements: Tax Benefits for Growing Families
Adoption Tax Credit
In addition to the exclusion for employer-provided adoption assistance, you may also be eligible for the adoption tax credit. This credit can help you offset the costs of adoption expenses, such as adoption fees, attorney fees, and travel expenses.
Requirements for Qualifying Adoption Expenses
To qualify for the adoption tax credit, the adoption must be of an eligible child. An eligible child is defined as a child who is under age 18 or is incapable of self-care.
Limits on the Adoption Tax Credit
The adoption tax credit is subject to certain limits. For 2023, the maximum adoption credit is $15,950 per child. The credit is phased out for taxpayers with adjusted gross income above a certain level.
Employer-Provided Adoption Assistance
If your employer provides adoption assistance, you can exclude those payments from your income, up to a certain limit. The limit for 2023 is also $15,950 per child.
Claiming the Adoption Tax Benefits
To claim the adoption tax credit or exclusion for employer-provided adoption assistance, you must file Form 8839, Credit for Qualified Adoption Expenses, with your tax return.
Seeking Adoption Tax Advice
Navigating the complexities of adoption tax benefits can be challenging. It’s best to seek professional advice from a tax advisor who can help you understand your eligibility and claim the benefits you deserve.
Connecting with Adoption Tax Specialists
Income-partners.net can connect you with tax specialists who have experience with adoption tax benefits and can help you navigate the process.
12. Qualified HSA Funding Distribution: A Tax-Advantaged Way to Save for Healthcare
Health Savings Accounts (HSAs) are tax-advantaged savings accounts that can be used to pay for healthcare expenses. One way to fund an HSA is through a qualified HSA funding distribution.
Qualified HSA Funding Distribution: A Tax-Advantaged Way to Save for Healthcare
What is a Qualified HSA Funding Distribution?
A qualified HSA funding distribution is a one-time transfer of funds from an IRA (other than a SIMPLE IRA or SEP IRA) to an HSA. This transfer is not taxable, but it is subject to certain requirements.
Requirements for a Qualified HSA Funding Distribution
To qualify for a qualified HSA funding distribution, you must meet the following requirements:
- You must be eligible to contribute to an HSA.
- You can only make one qualified HSA funding distribution in your lifetime.
- The distribution must be directly transferred from the IRA to the HSA.
- The amount transferred cannot exceed the maximum annual HSA contribution limit for the year.
Tax Benefits of HSAs
HSAs offer several tax benefits:
- Contributions are tax-deductible (or pre-tax if made through your employer).
- Earnings grow tax-free.
- Withdrawals for qualified healthcare expenses are tax-free.
Strategic Use of HSAs
HSAs can be a valuable tool for saving for healthcare expenses. They offer tax advantages that can help you grow your savings and pay for healthcare costs in retirement.
Connecting with HSA Experts
Income-partners.net can connect you with HSA experts who can help you understand the benefits of HSAs and determine if a qualified HSA funding distribution is right for you.
13. Income in a State With No Income Tax: A Geographic Advantage
Nine states currently do not tax income that is normally taxable at the federal level: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. While you’ll still owe federal income taxes, living in these states can reduce your overall tax burden.
Income in a State With No Income Tax: A Geographic Advantage
Benefits of No State Income Tax
Living in a state with no income tax can have several benefits:
- More Disposable Income: You’ll have more money in your pocket each month because you won’t have to pay state income taxes.
- Increased Investment Potential: You can use the money you save on state income taxes to invest and grow your wealth.
- Attractiveness to Businesses: States with no income tax often attract businesses, which can lead to job growth and economic development.
Considerations When Moving
While the prospect of no state income tax is appealing, there are other factors to consider when deciding whether to move to one of these states:
- Property Taxes: States with no income tax may have higher property taxes to compensate for the lost revenue.
- Sales Taxes: Sales taxes may also be higher in these states.
- Cost of Living: The cost of living may be higher in some of these states, especially in urban areas.
Strategic Location Planning
Choosing where to live is a significant financial decision. Consider the tax implications, cost of living, and other factors when deciding where to settle down.
Connecting with Relocation Experts
Income-partners.net can connect you with relocation experts who can help you navigate the complexities of moving to a new state and make informed decisions about your finances.
14. How To Lower Taxes on Taxable Passive Income
Even if you’re receiving taxable passive income, there are steps you can take to reduce your tax bill. Here are some strategies to consider:
Use Tax-Deferred Accounts
By keeping assets in tax-deferred accounts like traditional IRAs and 401(k) plans, you won’t have to pay tax on your income and gains until you withdraw the money from the account. In the case of a Roth IRA, you may never have to pay tax on your distributions at all. For traditional IRAs, 401(k) plans, and other qualified retirement accounts, you also might be able to claim a tax deduction on your contributions.
Hold for the Long Run
Holding investments for the long run not only helps you avoid multiple taxable transactions, it also allows you to take advantage of lower long-term capital gains tax rates.
Harvest Tax Losses
If you have unrealized losses in your portfolio, you can harvest those losses and use them to offset any taxable gains you may have taken during the year. If your losses exceed your gains, you can use up to $3,000 per year to reduce your ordinary income as well.
Partnering with Tax Professionals
Navigating the complexities of tax planning can be challenging. Income-partners.net connects you with experienced tax professionals who can help you develop a strategy to minimize your tax liability and maximize your financial well-being.
Unlock Your Passive Income Potential with Income-Partners.net
Understanding what passive income is not taxed is just the beginning. Income-partners.net provides the resources, strategies, and connections you need to build a thriving passive income portfolio. Explore our platform to discover:
- Diverse Investment Opportunities: Find partners for real estate ventures, business collaborations, and more.
- Expert Financial Guidance: Connect with advisors who can help you navigate the tax landscape and optimize your investments.
- Strategic Partnership Alliances: Forge relationships with like-minded individuals to amplify your earning potential.
Visit income-partners.net today and take the first step toward financial freedom. Address: 1 University Station, Austin, TX 78712, United States. Phone: +1 (512) 471-3434. Website: income-partners.net.
Income Partners
Frequently Asked Questions (FAQ)
1. What is passive income?
Passive income is earnings derived from an enterprise in which one is not actively involved, such as rental properties or investments.
2. Are municipal bonds always tax-free?
Generally, municipal bonds are tax-free at the federal level. Residents of the same state as the issuer may also enjoy a state-level tax break.
3. Is inheritance taxable?
Inheritance is generally not subject to federal income tax, but some states impose inheritance tax on recipients.
4. Are life insurance proceeds taxable?
Life insurance proceeds are typically paid to the beneficiary free from income tax.
5. Are disability payments taxable?
If you pay for all premiums of a health or accident insurance plan, any disability payments you receive are not considered taxable income.
6. Are gifts taxable?
Recipients of gifts never have to pay tax on what they receive.
7. Is alimony taxable?
For divorce or separation agreements executed after December 31, 2018, alimony is not deductible by the payer and is not included in the recipient’s taxable income.
8. Is child support taxable?
Child support payments are neither deductible to the payer nor taxable to the recipient.
9. Are Roth IRA withdrawals taxable?
As long as your withdrawals are “qualifying” (generally meaning you’ve held the account for at least five years and are older than 59.5), you won’t have to pay tax on any money you take out.
10. Are disaster mitigation payments taxable?
Disaster mitigation payments are not considered taxable income.
