What Income Is Tax Free?

Interest on municipal obligations is generally tax-free, though it has to be listed on Form 1040 (See instructions). Some municipal interest may be subject to the Alternative Minimum Tax.

Other tax-free income generally includes life insurance payments received on death of the insured, compensatory settlements for physical injuries (such as in a car accident), gifts, health or accident insurance proceeds (unless you deducted the expenses on a previous return and received a tax benefit), child support, scholarships and grants used for educational expenses (not board), veteran's benefits, welfare benefits, food stamps, workmen's compensation benefits, rebates on purchases of personal property, most inheritances.

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Tax Disclaimer: To ensure compliance with IRS Rules, any U.S. federal tax advice provided in this communication is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer (i) for the purpose of avoiding tax penalties that may be imposed on the recipient or any other taxpayer under the Internal Revenue Code, or (ii) in promoting, marketing or recommending to another party a partnership or other entity, investment plan, arrangement or other transaction addressed herein.