Categories: General Tax Terms
Exempt Income refers to income that is not subject to federal income tax. This type of income may include certain types of interest (such as municipal bond interest), gifts and inheritances, life insurance proceeds, and certain qualified educational assistance benefits.
Exempt income does not need to be reported on a taxpayer’s tax return, which can reduce their overall taxable income and tax liability. For example, if a taxpayer earns $5,000 in municipal bond interest, this amount is exempt income and will not be taxed, allowing the taxpayer to retain the full amount.
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