Where to Find Untaxed Income on Your Tax Return

Untaxed income on your tax return lives in a small set of predictable places: the gap between the “a” and “b” lines on Form 1040 (lines 2, 4, 5, and 6), Box 12 of your W-2, several adjustment lines on Schedule 1, and a few supporting forms such as 2555, 8889, 8949, and 1099-Q. Once you know where each category sits, pulling the numbers for a financial aid worksheet, a lender’s questionnaire, or your own records is straightforward.

The “a” and “b” Lines on Form 1040

Form 1040 uses a consistent pattern for income that is partly or fully untaxed. The full amount goes on the “a” line, and only the taxable piece continues to the “b” line. The difference between the two is your untaxed income for that category.

Line 2a — Tax-Exempt Interest

Interest from state and local government bonds goes on Line 2a. It does not flow to Line 2b, and it is not part of your ordinary income calculation.1Internal Revenue Service. Instructions for Schedule B (Form 1040) (2025) – Tax-Exempt Interest The IRS still requires the disclosure because the number feeds other calculations, including the taxable portion of Social Security benefits and the Net Investment Income Tax.

Lines 4a and 4b — IRA Distributions

Your total IRA distribution appears on Line 4a; only the taxable share continues to Line 4b. A qualified charitable distribution is the most common reason for a gap here. If you are 70½ or older, you can transfer up to $111,000 in 2026 directly from an IRA to a qualifying charity, enter $0 on Line 4b, and write “QCD” next to it.2Internal Revenue Service. Retirement Plans FAQs Regarding IRAs Distributions (Withdrawals) The QCD satisfies a required minimum distribution without adding to taxable income.

Lines 5a and 5b — Pensions and Annuities

If you made after-tax contributions to a pension or annuity during your working years, part of each distribution is a nontaxable return of that basis. The gross distribution goes on Line 5a; only the taxable portion goes on Line 5b.3Internal Revenue Service. Instructions for Form 1040 – Lines 5a and 5b Pensions and Annuities Form 1099-R from the plan administrator usually shows the taxable amount in Box 2a.

Lines 6a and 6b — Social Security Benefits

Your total Social Security benefits are on Line 6a; the taxable portion (0%, up to 50%, or up to 85%, depending on your provisional income) is on Line 6b. Retirees whose provisional income stays below $25,000 (single) or $32,000 (married filing jointly) will see the full Line 6a amount as untaxed.4Internal Revenue Service. Publication 915 (2025), Social Security and Equivalent Railroad Retirement Benefits – Are Any of Your Benefits Taxable

W-2 Box 12 — Pre-Tax Retirement Deferrals

For most working-age taxpayers, the single largest source of untaxed income is a pre-tax contribution to a 401(k), 403(b), or similar plan. It does not appear on Form 1040 at all. Your employer has already subtracted it from the wages reported in Box 1 of your W-2, and the deferral amount shows up separately in Box 12 with a letter code: D for a 401(k), E for a 403(b), and so on.5Internal Revenue Service. Are Retirement Plan Contributions Subject to Withholding for FICA, Medicare, or Federal Income Tax

For 2026, the elective deferral limit is $24,500, with an extra $8,000 available at age 50 or older.6Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 Because nothing on the 1040 flags this deferral, financial aid forms specifically ask for it, and the W-2 is where you find the number. HSA contributions run through payroll are handled the same way: they reduce Box 1 wages directly and appear on Form 8889 rather than as a deduction you claim.7Internal Revenue Service. Instructions for Form 8889 (2025) – Figuring Your HSA Deduction

Schedule 1 Adjustments

Schedule 1 collects the “above-the-line” deductions that reduce your adjusted gross income before you get to the standard or itemized deduction. Each of these lines represents income you earned but were not taxed on.

Line 13 — Health Savings Account Contributions

Direct HSA contributions (those you made yourself, not through payroll) are deducted on Schedule 1, Line 13.8Internal Revenue Service. Publication 969 (2025), Health Savings Accounts and Other Tax-Favored Health Plans – Contributions to an HSA The 2026 limits are $4,400 for self-only coverage and $8,750 for family coverage, plus $1,000 more at age 55 or older.9Internal Revenue Service. Expanded Availability of Health Savings Accounts Under the One, Big, Beautiful Bill Act (OBBBA)

Line 15 — Deductible Half of Self-Employment Tax

Self-employed filers deduct one-half of their self-employment tax on Schedule 1, Line 15. It offsets the fact that they pay both the employer and employee shares of Social Security and Medicare tax.

Line 17 — Self-Employed Health Insurance

Health insurance premiums paid by a self-employed person are deducted on Schedule 1, Line 17.10Internal Revenue Service. Instructions for Form 7206 (2025) – Self-Employed Health Insurance Deduction

Line 20 — Traditional IRA Deduction

Deductible traditional IRA contributions land on Schedule 1, Line 20, and roll into Line 10 of Form 1040. The 2026 contribution limit is $7,500, or $8,600 at age 50 or older.6Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 If you or your spouse are covered by a workplace plan, the deduction phases out at higher income levels.11Internal Revenue Service. Publication 590-A (2025), Contributions to Individual Retirement Arrangements (IRAs) – Modified AGI Limit for Traditional IRA Contributions This is a deferral, not a permanent exclusion; the money becomes taxable when you withdraw it.

Exclusions That Sit on Supporting Forms

Larger exclusions run through their own forms first, then feed the 1040 or a schedule.

Form 2555 — Foreign Earned Income Exclusion

If you meet the bona fide residence test or the physical presence test, you can exclude up to $132,900 of foreign wages for 2026.12Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill The exclusion is calculated on Form 2555 and shown as a negative number on Schedule 1, Line 8d.13Internal Revenue Service. Instructions for Form 2555 (2025) A housing exclusion or deduction may also apply.

Form 8949 and Schedule D — Home Sale Gain

Federal law lets you exclude up to $250,000 of gain on the sale of your main home ($500,000 for a joint return) if you owned and used the home as your principal residence for at least two of the five years before the sale.14Office of the Law Revision Counsel. 26 USC 121 Exclusion of Gain From Sale of Principal Residence If your entire gain fits inside the exclusion and you did not receive a Form 1099-S, the sale typically does not need to be reported. If a 1099-S was issued or part of the gain exceeds the exclusion, the sale goes on Form 8949 and Schedule D, with the excluded amount shown there.15Internal Revenue Service. Topic No. 701, Sale of Your Home

Form 1099-Q — 529 Plan Distributions

529 plan earnings grow tax-free, and distributions used for qualified education expenses are not federally taxable.16Internal Revenue Service. 529 Plans Questions and Answers The plan trustee issues Form 1099-Q showing the gross distribution, earnings, and basis. A fully qualified distribution is not reported on Form 1040. K-12 tuition distributions are capped at $10,000 per year.

Qualified Scholarships

Scholarship or fellowship money spent on tuition, fees, books, and required supplies by a degree candidate is excluded from gross income and does not appear on the return.17Office of the Law Revision Counsel. 26 USC 117 Qualified Scholarships Any portion used for room, board, or other living expenses is taxable and generally goes on Line 1 of Form 1040.

Untaxed Income That Appears Nowhere on the Return

Some categories are excluded from gross income entirely. Nothing captures them on Form 1040 or its schedules, so if a financial aid office or lender asks about them, you will need your own records rather than a line reference.

A Word on Getting the Categorization Right

Every item above is income the tax code deliberately excludes or defers. Treating ordinary taxable income as untaxed is a different problem. The IRS applies a 20% accuracy-related penalty when an underpayment results from negligence or careless disregard of the rules,21Internal Revenue Service. Accuracy-Related Penalty and a 75% penalty on the portion of an underpayment attributable to fraud.22Office of the Law Revision Counsel. 26 U.S. Code 6663 – Imposition of Fraud Penalty Interest runs on both the tax and the penalty from the original due date. When in doubt about whether something belongs on the exempt side of an “a/b” line or in Box 12, check the specific form instructions rather than making an assumption from the label.