10 Types of Income the IRS Will Not Tax for the 2026 Tax Year

Whether you're new to filing your own taxes or a seasoned professional looking to increase your personal tax savings, it's vital to know what income the IRS doesn't tax.

This can help you keep more cash in your wallet and be more tax-savvy throughout the year, rather than waiting until tax season to see what you qualify for.

Here are 10 things you won't have to pay taxes on this year. This means you could have a bigger return next year and more opportunities to grow your return.

Child support and some alimony payments

Good news for divorced couples: You don't have to pay taxes on child support payments or some alimony payments. If child support payments are a requirement of the divorce settlement, they are not considered taxable income by the IRS.

This means that you won't have to pay any federal or state taxes on your child support payments, provided you still meet the requirements of your original agreement.

Alimony is a bit more complicated. Alimony payments made under divorce decrees finalized after December 31, 2018, aren't taxed as income for the receiving party. 

However, if your divorce was finalized before 2019, then you may still be liable for paying taxes on alimony you receive from your ex-spouse.

So, if you have alimony payments, be sure to double-check the date of your decree and find out if they will be tax-free.

Rebates and cashback rewards from credit cards

Rewards programs are more popular than ever, especially with offers on the best cash-back credit cards. In fact, many credit card issuers now offer rewards cards with huge cash back bonuses just for signing up.

With these cards, you can earn anywhere from 1% back on purchases to 5% back when you shop at specific merchants. Some even offer 0% intro APR promotions and no foreign transaction fees.

But here's the best part: You don't have to pay taxes on your cash back or rebates. That means all of those points, miles, and rewards can be used for whatever you like without worrying about a tax bill at the end of the year.

Inheritance

In many cases, whatever you inherit won't be taxed. You don't need to worry about complex tax forms or hire a qualified accountant to make sure your return is as accurate as possible.

Inheritance tax laws vary by state and can be confusing. But for the 2026 tax year, all inheritances in the U.S. will be exempt from taxation (except in five states: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania), which means more money in your pocket.

Life insurance payouts

In the 2026 tax year, you won't have to pay taxes on life insurance proceeds. This means that if someone in your family was insured and you receive a payout upon their passing, you can rest assured that the entire payout is yours to keep.

This is a major benefit for those who are receiving life insurance payouts, especially at an already emotionally taxing time. Plus, not having to worry about additional taxes takes off some of the financial strain. 

However, any interest you receive is taxable, and you should report it as interest received. 

Olympic and Paralympic medals and USOC prize money

If you're an Olympic or Paralympic athlete, you know that it's a long road to the top. It takes years of hard work, dedication, and money to become an elite athlete. 

But all that effort might just pay off because U.S. Olympic and Paralympic medals and USOC prize money are exempt from taxes.

That's right: Your gold, silver, or bronze medal at the next Olympics won't trigger a tax bill come April 15th. The same goes for any bonus cash you win from the United States Olympic Committee (USOC). 

Athletes who earn at least $1 million per year may still have to pay the victory tax.

Employer-provided adoption assistance

Adopting a child can be expensive, but your employer may help cover some of the costs. If your company offers an adoption assistance program, you could receive qualifying adoption benefits without having to pay federal income tax on them.

These benefits can cover expenses such as adoption agency fees, legal fees, court costs, and certain travel expenses. For 2026, you can exclude up to $17,670 in qualifying employer-provided adoption assistance from your federal taxable income, depending on your income and eligibility. The IRS has not yet announced the 2027 limit.

Your employer must offer a qualified adoption assistance program for you to take advantage of this tax break. You'll also need to report the benefits on IRS Form 8839 to determine how much you can exclude.

Remember, this is a tax-free income benefit, not a tax credit. You generally can't use the same adoption expenses to qualify for both an income exclusion and the adoption tax credit.

Health care benefits

Health care benefits are also something you don't have to pay taxes on. This is great news for those who receive health insurance through their employer or purchase it themselves.

This benefit applies to both individual and group health insurance plans, as well as to government-funded programs such as Medicare and Medicaid.

Additionally, this includes long-term care coverage, vision and dental plans, mental health services, and other ancillary benefits, such as transportation assistance for medical appointments.

Plus, if you take part in a flexible spending account (FSA) or health savings account (HSA), you can use that money tax-free as long as it goes toward approved medical expenses.

Retail cash rebates

Retail cash rebates are discounts offered to customers when they purchase goods or services. When customers buy something, they receive a percentage back as a rebate check, gift card, or another type of reward.

Generally, these discounts range from 1% to 10% of the original price, but can be higher depending on how much you buy. The main benefit of retail cash rebates is that they are generally non-taxable if earned from personal purchases.

The IRS treats a rebate as lowering the cost of a purchase, not as income. This means that if you get a rebate check from your favorite store, you don't have to declare it as income when filing your taxes.

Scholarships

Scholarships aren't taxed as long as they are used for qualifying education costs, if the student is a degree-seeking candidate, and if they attend a qualified educational institution. You can rest easy knowing that any scholarship money you receive or give will not be taxed this year.

If you're a student looking to fund your college education through scholarships, then this is great to know. Instead of worrying about how much of your award money could possibly go toward taxes each year, you can focus on furthering your studies and eventually getting a degree.

Gifts

Gift givers can rest easy knowing that their generosity won't cost the recipient any taxes up to a certain amount. 

But before they go on a gift-giving spree, it's important to remember that the IRS imposes certain limitations and restrictions on gifts. For example, a parent may give a child up to $19,000 in the 2026 tax year without incurring a tax. The amount will increase to $20,000 for the 2027 tax year.

The IRS says a gift must be given with "detached generosity," meaning it cannot be conditional on receiving something from the recipient in return. Gifts cannot be used to pay off a debt or as part of a business transaction.

Bottom line

There are lots of great things you don't have to pay taxes on for the 2026 tax year. We've gone over some tax-free items, like specific scholarships, gifts, and inheritances, health care benefits, alimony payments, and more.

Just remember that these items should be verified with your accountant or tax preparer before filing your taxes. This can help you get ahead financially this year and next as you prepare yourself for next year's tax bill.

If you're preparing your own taxes using the right tax software, know that the latest programs are updated with current tax laws each year.

You May Also Like

23 Ways To Get Money Without Getting A Second Job

By FinanceBuzz Editors

How To Save Money on Car Insurance: 12 Ways to Lower Rates

By Elyssa Kirkham

10 Things Seniors Born Between 1941-1969 Could Take Advantage Of

By FinanceBuzz Editors

19 Dumbest Things Smart People Waste Money On

By Team FBZ

7 Moves If You Want to Stop Living Paycheck to Paycheck

By FinanceBuzz Editors

7 Clever Ways to Crush Your Debt

By FinanceBuzz Editors

Up To 5% Cash Back

Discover it^® Cash Back

Benefits Card Details

• Intro APR on purchases and balance transfers
• $0 annual fee
• Apply Now

• INTRO OFFER: Receive a $200 statement credit when you spend $500 on purchases in your first 3 months of account opening
• UNLIMITED CASHBACK MATCH: Discover will automatically match all the cash back you’ve earned at the end of your first year! There’s no minimum spending or maximum rewards. You could turn $150 cash back into $300. Click Apply Now to view important rates and disclosures
• Earn 5% cash back on everyday purchases at different places you shop each quarter, up to the quarterly maximum when you activate. Plus, earn unlimited 1% cash back on all other purchases
• Redeem cash back for any amount. Every $1 you earn in cash back is $1 you can redeem
• Rewards don't expire for the life of the account
• No annual fee and no foreign transaction fee
• Lock your card in the Mobile app if it’s misplaced, lost, or stolen
• You're covered by $0 Fraud Liability for unauthorized charges

4.7

FinanceBuzz writers and editors score cards based on a number of objective features as well as our expert editorial assessment. Our partners do not influence how we rate products.

Apply Now

on Issuer's secure website

Rates and fees

Read Card Review

Intro Offer

UNLIMITED CASHBACK MATCH: Discover will automatically match all the cash back you’ve earned at the end of your first year! There’s no minimum spending or maximum rewards. You could turn $150 cash back into $300. Click Apply Now to view important rates and disclosures. Plus, receive a $200 statement credit when you spend $500 on purchases in your first 3 months of account opening

Annual Fee

$0

+ -

Why we like it

• The Discover it^® Cash Back is ideal for anyone who loves flexible rewards options.

• Cardholders can redeem their cash back for any amount.

• Earn 5% cash back on rotating bonus categories up to the quarterly maximum when you activate, along with 1% cash back on all purchases.

• Apply Now

---

Subscribe Today

Learn how to make an extra $200

Get vetted side hustles and proven ways to earn extra cash sent to your inbox.

or

Subscribe Now →

By submitting this form you agree to receive emails from FinanceBuzz and to the privacy policy and terms