12 Types Of Nontaxable Income

Most income earned by U.S. citizens is subject to federal and sometimes also state taxation. However, not all types of income are taxable. If you’re reading this article, you’re like interested in reducing your taxable income.

Certain kinds of income are free from taxation — or in other words, this income is nontaxable. Following are some of the most common forms of tax-free income.

1. Financial Gifts

You can give away up to $15,000 per person each year to whoever you like without having to pay gift tax. Together, you and your spouse can give away up to $30,000 per person gift-tax free. Any amounts you give away above these exclusion amounts could be subject to a gift tax of between 18% and 40% in 2021, depending on the value of the gift in excess of these exclusions.

A few other types of gifts are also nontaxable, including political donations, gifts to qualified charities, and tuition or medical expenses paid on behalf of someone else. Financial gifts from employers (like gift cards), however, may be taxable as fringe benefits, depending on their value.

2. Educational and Adoption Assistance from Your Employer

If the company you work for provides you with educational assistance — such as paying for you to attend night school to pursue a graduate or undergraduate degree — you can exclude up to $5,250 of this assistance from your gross income. Up to $14,440 in employer-provided adoption assistance is also considered to be nontaxable income. The exact amount of your income exclusion for adoption assistance will depend on your modified adjusted gross income.

3. Employer-provided Meals and Lodging

Though these aren’t technically income, if your employer provides you with any meals or lodging, you don’t have to include their value in your taxable income. To qualify for this tax-preferential treatment, the meals and lodging must be furnished on your employer’s premises for the convenience of the employer.

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