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Odoni Partners LLC - Certified Public Accountants > News > Accounting > 7 Types of Tax-Free Income Sources
  • Dante Odoni, CPA
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Tax-free income is income you receive that is not subject to income tax, such as student loans, municipal bond interests, and some capital gains. If you are looking to learn about tax-free income sources, this article is for you.

At Odoni Partners LLC, we’re the leading provider of professional accounting services in Naperville, IL. In this blog, we share some of the common sources of tax-free income. To learn more about taxes and other accounting issues, reach out to us with your questions today.

Employer Support

Some financial assistance you receive from your employer is tax-exempt. If you get adoption assistance from your employer, you can receive adoption credit for up to $14,440.

This amount varies depending on your modified adjusted gross income (MAGI) and whether you applied for qualified adoption expense credits in the past years.

Additionally, if your employer has an active education assistance program, you stand to get up to $5,250 annually in benefits, and you won’t pay income tax for it.

Municipal Bond Investments

One of the most effective ways of earning tax-free income is to invest in municipal bonds. These are debt obligations issued by cities, counties, states, and other government entities to help fund capital projects such as building schools, highways, and rail systems.

When you invest in municipal bonds, the interest you earn on them is entirely free of federal taxation.  Before investing in a municipal bond, be sure to research it properly because not all of them are tax-exempt at the state level.

Accelerated Death Benefits

Some life insurance policies come with accelerated death benefits. That means, if you are chronically or terminally ill, you can receive a tax-free cash advance up to the policy limit as a living benefit. When you pass on, your beneficiary will receive benefits minus the death benefits you received while you were alive.

Energy Conservation Subsidies

Any rebates or other financial rewards you receive from your energy service provider for your energy conservation efforts are non-taxable.


Inheritance is another common source of tax-free income. As of the 2021 tax year, the inheritance you receive following a loved one’s death is generally tax-free, up to $11.7 million. The deceased’s estate will pay any pending federal taxes where applicable.


However, some states have inheritance taxes imposed on asset transfers. These taxes vary from one state to another. They also depend on the relationship between the heir and the deceased.

States with inheritance taxes include New Jersey, Pennsylvania, Kentucky, Nebraska, and Iowa.

Disaster Relief Payments

If you are a victim of a disaster, the relief assistance or other compensation you receive from the government is tax-free income. This compensation may include money for personal effects, funerals, property repair, and property replacement costs that insurance does not cover.

Child Support

The payment you receive for child support are tax-exempt, and you should not include them in your income when filing your taxes.

If you need more information about tax-free income, including how to avoid paying taxes on your savings account, skip the queues for overbooked tax services like H&R Block. Our dedicated experts at Odoni Partners LLC can help. We’re also the go-to professionals if you want to learn more about corporate audit services. Contact us today to get a free quote.