August 2024
Barbara O’Neill, Ph.D., CFP®, AFC®
Distinguished Professor and Extension Financial Management Specialist Emeritus
Rutgers Cooperative Extension
The phrase "There Ain't No Such Thing as a Free Lunch" is a caution against fraud, inappropriate investments, and other questionable transactions. Essentially it means that, when you are offered something for "free," there is a cost somewhere and, in many cases, something expected in return (e.g., a purchase or a service).
There are, however, some situations in life where money is truly free. Sometimes, it comes with "no strings attached" whatsoever (i.e., no required action or time commitment) while, in other cases, some action is required first by the recipient. Below are examples of "free money" in each category:
Free Money With Prerequisites
Cashback Websites- Companies like www.rakuten.com and www.ibotta.com provide cash-back rewards for shopping in-store and/or online on everyday purchases. Recipients must, of course, spend money first. Earnings are not taxable because they are considered a product discount.
Credit Card Rewards- Think 2% cash back (e.g., $200 from 2% cash back on a $10,000 purchase) or airline miles. Previous spending is required. This money is considered a rebate by the IRS and is not taxable.
Employer Benefits- Some employers offer taxable sign-on bonuses for new hires. Others provide 401(k) plan match for workers who save money first. This money is taxed when retirees take required minimum distributions in later life. Other employee benefits like free tuition and free standby travel are not taxable.
Focus Group Research- Companies like www.focusgroup.com and www.userinterviews.com pay people who take the time to participate in focus groups. These payments are generally considered miscellaneous taxable income just like prizes and gambling winnings.
Government and Non-Profit Agency Assistance- This includes programs such as home energy assistance, the SNAP program that provides funds for food, the Section 8 housing program, food pantries, and more. Income and/or asset qualifications often apply and benefits are generally not taxable.
New Account Bonuses- Some banks, credit unions, and brokerage firms offer bonuses for opening new accounts with specified dollar amounts. One large national bank recently offered a $2,500 bonus for depositors with $250,000 in new deposits. Bonus money, like bank interest in general, is considered taxable income.
Survey Websites- Websites like www.surveyjunkie.com and www.swagbucks.com pay people to complete surveys for market research. Like focus groups, there is a time commitment involved.
Unclaimed Money- Websites like www.missingmoney.com and www.unclaimed.org help people find unclaimed money from bank accounts, insurance policies, pensions, utility deposits, tax refunds, and other sources. Proper ID is required. Once money is claimed, it may result in a tax bill (depending on the source).
Totally Free Money
Inheritances- This is money received following the death of a friend or family member. No action is technically required of recipients, although some provide care-giving support toward the end of the donor's life. Inheritances are not considered taxable income by the IRS.
Life Insurance- Similar to inheritances, life insurance proceeds received by a beneficiary of a deceased person's life insurance policy are not included in gross income. No action is generally required of recipients other than to present a copy of policyholder's death certificate.