The default rule: taxable unless excluded by law
IRS Publication 525 lays out the full list of exceptions, but the starting assumption for any money, property, or service you receive is that it counts as taxable income unless a specific rule says otherwise.
Common types of nontaxable income
| Type of income | Why it’s not taxable |
|---|---|
| Gifts and inheritances | Not treated as income to the recipient under federal law |
| Child support | Explicitly excluded from taxable income |
| Alimony (post-2018 agreements) | No longer deductible to payer or taxable to recipient |
| Qualified scholarships | Tax-free when used for tuition and required fees |
| Life insurance death benefits | Generally excluded from gross income |
Source: Internal Revenue Service
Nontaxable doesn’t always mean you skip reporting it
Some nontaxable amounts still have to show up on your return, even though you won’t owe tax on them, for example:
- Gifts or inheritances below the annual exclusion amount ($19,000 for tax year 2026, $18,000 for tax year 2025)
- Tax-exempt interest from municipal bonds is a good example: it’s not taxed federally, but the IRS still wants it reported because it can affect other calculations, like how much of your Social Security is taxable.
- Scholarships, because even though a portion may be tax-free if used for eligible expenses, the rest is taxable income.
- Alimony, if your agreement was finalized before December 31, 2018.
Investment income that gets special tax-free treatment
Qualified withdrawals from a Roth IRA aren’t taxed, since you already paid tax on the money before contributing it, and don’t need to be reported on your return. Interest from most municipal bonds is exempt from federal tax, and in some cases from state tax too, though it’s still reported for informational purposes.
When ‘usually nontaxable’ income becomes taxable
Context matters. A scholarship is tax-free for tuition but taxable if used for room and board. A life insurance payout is tax-free as a lump sum but partly taxable if paid out with interest over time. And a gift is nontaxable to the recipient, but the giver may owe gift tax (filed on Form 706 or 709) if a gift exceeds the annual or lifetime exclusion.
