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Tax Exempt Income

Some income is not taxed by the IRS. It's important that you know the difference.



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Tax-exempt income

Sources of tax-exempt income are:

  • Welfare benefits
  • Interest from municipal bonds
  • Most gifts
  • Most inheritance and bequests
  • Workers compensation
  • Veteran's benefits
  • Federal tax refunds
  • Some scholarships/fellowships

Consult IRS publications for more information, or use an online program for help.


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Tax-exempt scholarships and fellowships

Scholarships are considered taxable if you receive a W2 form with the scholarship listed as wages.

If you an enrolled student ands you do not receive a W2 form for your scholarship or fellowship, the amount is fully excludable from your taxable income.


IRS publications on tax-exempt income

Get more information about tax-exempt income from Publication 525.

Note: you will need an Adobe Acrobat Reader to view these publications, which you can get here. (But you probably already have it.)



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©Copyright 2005 Taxes In-Depth LLC


Read this disclaimer: This internet site provides information of a general nature for educational purposes only and is not intended to be legal or tax advice. We make no guarantees as to the validity of the information presented. Your particular facts and circumstances, and changes in the law, must be considered when applying U.S. tax law. You should always consult with a competent tax professional licensed in your state with respect to your particular situation.