Certain forms of income are referred to as exempt income and are not subject to income tax. Some forms of income are not subject to either state or federal income taxes. The IRS establishes the conditions under which various types of income are excluded from federal income tax. The criteria for what constitutes exempt income vary by state. Numerous forms of income and benefits may not be taxable in certain situations. The majority of health-related benefits from employer-sponsored health insurance plans, private insurance plans funded with after-tax monies, employer-sponsored supplemental disability insurance benefits, and worker’s compensation are all free from taxes.
Gifts that are given to someone else and surpass a specific threshold may be subject to a gift tax. Gifts under $16,000 (for 2022) or $17,000 (for 2023) are exempt from income tax, nevertheless.No matter their cost, some gifts are excluded from income tax, such as charitable donations and tuition paid for someone else. Contributions to charities are also tax deductible.
In accordance with the Tax Cuts and Jobs Act (TCJA), which was enacted in December 2017, new exempt income regulations were introduced. For instance, the TCJA nearly quadrupled the standard deduction while eliminating personal exemptions from tax years 2018 through 2026.