What Income Is Tax Free?

Interest on municipal obligations is generally tax-free, though it has to be listed on Form 1040. Some municipal interest may be subject to the Alternative Minimum Tax.

Other tax-free income generally includes life insurance payments received on death of the insured, compensatory settlements for physical injuries (such as in a car accident), gifts, health or accident insurance proceeds (unless you deducted the expenses on a previous return and received a tax benefit), child support, scholarships and grants used for educational expenses (not board), veteran's benefits, welfare benefits, food stamps, workmen's compensation benefits, rebates on purchases of personal property, most inheritances.