Only two weeks remain until the deadline for filing federal income tax returns for the year 2021. If you’re still unsure about what income is taxed and what isn’t, we have a list of income that isn’t taxed.
Retirees received a variety of stimulus payments and made significant financial adjustments last year. It’s critical to keep track of when you shouldn’t be paying extra money to keep more money in your pocket. There are eight categories of tax-free retirement income.
1. Checks for stimulus
The Internal Revenue Service (IRS) has delivered Americans Letter 6475, which contains information on the third stimulus check, which was sent in 2021. This letter is intended to assist you or your tax preparer in preparing your tax returns.
Although stimulus cheques are not taxable, they must still be recorded on your 2021 tax returns.
2. The Social Security Administration
You should not be taxed on your Social Security retirement benefits if the Social Security Administration (SSA) determines that your combined income is below a specified threshold.
Whether you submit a tax return as an unmarried individual, jointly with your spouse, or separately determines the exact amount.
Monthly retirement, survivor, and disability benefits are all available through Social Security.
Supplemental security income (SSI) payments are not included because they are not taxable.
3. Savings account for health care
Health savings account (HSA) contributions are tax-deductible. In addition, when utilized for medical costs, HSA withdrawals are tax-free.
4. Payments on a reverse mortgage
A reverse mortgage is a form of loan that allows you to borrow money from your own home.
A homeowner who is 62 years old or older and has a lot of equity in their property can borrow against it. Reverse mortgage payments aren’t taxed, according to the IRS. Loan proceeds, not income, are considered with reverse mortgage payments.
While you continue to reside in your house, the lender pays you, the borrower, the loan proceeds in a lump amount, a monthly advance, a line of credit, or a mix of all three.
5. Distributions from Roth IRAs
Distributions from a Roth individual retirement account (IRA) are tax-free. Distributions received at the age of 59-1/2 are among those that qualify as qualifying distributions.
6. Proceeds from life insurance
According to the IRS, life insurance benefits received as a beneficiary owing to the insured person’s death are not considered gross income and are not required to be reported.
There is one exception: any interest you receive is taxable and should be reported as such.
7. Trying to sell your house
Depending on how much you made, the profit, or capital gains, from selling your principal residence may not be subject to federal income tax.
If you have a capital gain on the sale of your primary residence, you may be able to deduct up to $250,000 from your taxable income.
If you file a combined return with your spouse, you can deduct up to $500,000 of that gain.
8. Benefits for veterans
The Veterans Administration’s disability compensation should not be included in your gross income.
The following are some of the payments that are considered disability benefits:
- Veterans and their families receive disability compensation and pension payments for their disabilities.
- Grants for homes that are wheelchair accessible
- Vehicle grants for soldiers who have lost their sight or the use of their limbs
- A dependent-care aid program’s benefits