5 Tax Free Income IRS Cannot Touch

As per the tax code applicable in the United States of America, there are certain types of income that are not taxable at all. If you be a little creative and take some actions in advance, you can turn certain part of the compensation you receive from your employer into a tax free income. There are plenty of ways to make your compensation nontaxable. So, get ready if you are due for a raise. Following is a brief rundown on five wonderful alternatives to taxable earned income.

Flexible Spending Accounts

These are also commonly referred to as cafeteria plans. Most employers have a written plan to make deductible contributions, where you get an option to choose between nontaxable and taxable benefits. The nontaxable benefits that are usually available for employees include health benefits, dependent care, disability benefits, and group life insurance. The exact details of the options depend upon your individual plan.

Transportation And Parking

If your company provides you certain allowances for car parking or for using public transportation, you can get those benefits tax-free. If you use your car to go to work and pay a certain amount of money for parking, any parking allowance provided by your company will be considered as a tax free income, but only up to $230 per month. If you use public transportation to go to work and your company provides you tokens, or passes, or discount fare cards, such benefits will be nontaxable up to a maximum value of $120 per month.

Educational Assistance Paid By Your Employer

Any educational assistance that you receive from your employer is nontaxable up to a maximum value of $5250 per year. You may receive such assistance if you are enrolled in graduate, undergraduate, or postgraduate courses to maintain or improve your skills and qualifications. The courses may or may not be related to your current job, but at the same time, the courses must not be related to just your hobbies, or your favorite games or sports. Any course that adds to your qualification and professional skills may come under this category. So, this might be the right time to send yourself to school, as this way, you can obtain one more type of tax free income.

Group Term Life Insurance Coverage

Most companies offer group term life insurance coverage for their employees. It means they will pay the premiums while you will enjoy the benefits; you can even choose the beneficiary. Such compensation benefits up to a maximum value of $50,000 are completely nontaxable. For your company, the expenses incurred on premiums will be tax deductible. On the other hand, you will get an additional tax free income.

Health Coverage Benefits

If you are receiving any health coverage benefits from your former or current employer, those benefits are also tax free. The premiums paid by your employers on health and hospitalization insurance policy for you can be a huge benefit for both the parties. When employers bear these expenses, none of the parties is required to pay the 7.65% payroll taxes on the premiums. Additionally, for you, it is a great opportunity to enjoy a substantial increase in your disposable income.

Overall, when convert taxable income into nontaxable income by making the best use of the above provisions made by the US Tax Code, you can enjoy a substantial raise for yourself. So, talk to your company about it and request to make some arrangements accordingly. After all, it is a win-win situation for both the parties; you get a tax free income while your company gets a chance to make their expenses tax deductible.