What Is Exempt From Federal Taxation?

Several categories of income and organizations are exempt from federal taxation.

The IRS provides federal taxation exemption to individuals and organizations who meet specific criteria. Individuals are exempt from paying taxes on certain government benefits and retirement fund distributions, while charitable and public service organizations receive exemption if they meet IRS standards.

Government Benefits

The IRS doesn't tax welfare benefits that are distributed on the basis of the recipient's need. Disaster relief payments for federally declared disasters and disasters resulting from military action and terrorism are also exempt from federal taxation.

Roth IRAs

Roth IRAs were created by The Taxpayer Relief Act of 1997. While Roth contributions are taxed, distributions are tax exempt so long as the Roth IRA holder is at least 59.5 years old or has been given dispensation to make early withdrawals due to disability.

Tax-Exempt Organizations

Organizations serving exclusively as religious, charitable, educational or scientific institutions are exempt from federal taxes. These organizations must abide by the IRS prohibition on attempting to influence legislation and campaigning on behalf of any individual running for office to maintain their tax-exempt status.

References

• IRS: Other Section 501(c) Organizations
• Cornell University Law School: Legal Information Institute: Title 26: Section 501: Exemption From Tax on Corporations, Certain Trusts, etc.
• Investopedia: Tax Treatment of Roth IRA Distributions
• IRS: Other Income

Resources

• IRS: Retirement Plan FAQs on Designated Roth Accounts