Additional Coverage:
- 10 Types of Income the IRS Will Not Tax in 2026 (financebuzz.com)
Smart Savings: 10 Types of Income the IRS Won’t Touch
Whether you’re a first-time tax filer or a seasoned pro looking to maximize your savings, knowing what income the IRS considers tax-free is a game-changer. This knowledge can help you keep more money in your pocket and make smarter financial decisions year-round, instead of scrambling at tax season.
Here are 10 things you won’t owe taxes on this year, potentially leading to a bigger return and more opportunities to grow your wealth.
1. Child Support and Some Alimony Payments
Good news for those navigating divorce: child support payments are generally not considered taxable income by the IRS. This means you won’t face federal or state taxes on these payments, provided they align with your original divorce settlement requirements.
Alimony, however, is a bit more nuanced. If your divorce was finalized after December 31, 2018, alimony payments are not taxed for the recipient.
For divorces finalized before 2019, you might still be liable for taxes on alimony received. It’s always wise to double-check your decree date to confirm your tax status.
2. Rebates and Cashback Rewards from Credit Cards
Credit card reward programs, especially those offering generous cashback bonuses, are more popular than ever. The best part?
The cashback or rebates you earn are typically tax-free. This means those points, miles, and rewards can be used as you see fit, without the looming worry of a tax bill.
3. Inheritance
Inherited assets generally won’t be subject to federal taxation. While inheritance tax laws can vary by state and sometimes be confusing, for the 2026 tax year, most inheritances in the U.S. are exempt from federal taxation.
(Note: five states-Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania-do have their own inheritance taxes.) This exemption can mean more money staying with you.
4. Life Insurance Payouts
In the 2026 tax year, you won’t have to pay taxes on the proceeds from a life insurance policy. If you receive a payout upon the passing of a loved one, the entire sum is typically yours to keep.
This can be a significant benefit during an already difficult emotional time, easing some financial strain. However, any interest earned on the payout is taxable and should be reported.
5. Olympic and Paralympic Medals and USOC Prize Money
For U.S. Olympic and Paralympic athletes, years of dedication can pay off in more ways than one.
Gold, silver, or bronze medals, along with prize money from the United States Olympic Committee (USOC), are generally exempt from taxes. This means your athletic achievements won’t trigger an unexpected tax bill on April 15th.
(A notable exception: athletes earning at least $1 million annually may still be subject to a “victory tax.”)
6. Qualified Adoption Expenses
Adopting a child can be a costly endeavor, but the IRS offers a tax credit for qualified adoption expenses. While the rules are complex and consulting a tax expert is often recommended, these expenses can include attorney fees, court costs, travel associated with the adoption, agency fees, and medical costs related to the adopted child’s health.
7. Health Care Benefits
Health care benefits are generally tax-free. This applies whether you receive health insurance through your employer, purchase it independently, or are covered by government programs like Medicare and Medicaid.
This benefit extends to long-term care coverage, vision and dental plans, mental health services, and other ancillary benefits. Furthermore, funds in Flexible Spending Accounts (FSAs) or Health Savings Accounts (HSAs) can be used tax-free for approved medical expenses.
8. Retail Cash Rebates
Retail cash rebates are essentially discounts offered on goods or services. When you receive a percentage back as a check, gift card, or other reward, the IRS typically views this as a reduction in the purchase price, not as income. This means those rebate checks from your favorite stores usually don’t need to be declared as income when you file your taxes.
9. Scholarships
Scholarships are generally not taxed, provided they are used for qualifying educational costs, the recipient is a degree-seeking candidate, and they attend a qualified educational institution. This allows students to focus on their studies without worrying about a portion of their award money being siphoned off for taxes.
10. Gifts
Generosity often goes untaxed for the recipient, up to a certain amount. For the 2026 tax year, for example, an individual can give up to $19,000 to another person without incurring a gift tax for the giver (the recipient never pays gift tax). However, the IRS requires gifts to be given with “detached generosity,” meaning they cannot be conditional on receiving something in return, used to pay off debt, or be part of a business transaction.
The Bottom Line
Many great things won’t be taxed in the 2026 tax year, from specific scholarships and gifts to health care benefits and certain alimony payments. Always remember to verify these items with your accountant or tax preparer before filing to ensure accuracy and to help you get ahead financially. If you’re using tax software, rest assured that the latest programs are updated with current tax laws each year.
Money Tips That Can Work for Everyone
No matter your financial situation, there’s always room to improve your finances and boost your wealth. Here’s a quick guide to get you started today:
- Increase Your Income: If bills are tight, explore side hustles that fit your schedule or other legitimate ways to bring in more cash.
- Grow What You Have: Time and compound interest are powerful tools for wealth growth.
Start by understanding your financial standing to create a plan of action. Working with a professional can be a smart move, especially if early retirement is a goal.
- Take Advantage of Opportunities: Maximize benefits, discounts, and money-saving opportunities. For car owners, securing the best auto insurance rates can save hundreds.
Conversely, be vigilant about avoiding money-wasting traps that silently drain your bank account.
Read More About This Story:
- 10 Types of Income the IRS Will Not Tax in 2026 (financebuzz.com)