ALL0-9ABCDEFGHIJKLMNOPQRSTUVWXYZ
Share This
Share
« Back to Glossary Index
Categories: General Tax Terms

Tax-Exempt Interest refers to interest income that is not subject to federal income tax and, in some cases, state and local taxes as well. This type of interest is typically earned from specific investments, such as municipal bonds, which are issued by state or local governments to fund public projects.

For example, if an investor purchases a municipal bond yielding 4% interest, the interest received from that bond is considered tax-exempt interest and will not be included in the investor’s taxable income for federal tax purposes. This can make such investments particularly attractive to individuals in higher tax brackets, as they can effectively receive a higher after-tax return compared to taxable bonds.

Related Articles:
  • Glossary: Provisional Income
    Provisional Income is your financial spotlight! It’s the total of your adjusted gross income plus tax-exempt interest. Understanding it helps you navigate taxes with a smile!
  • Glossary: Managing Taxable Social Security Benefits
    Managing Taxable Social Security Benefits means understanding how your benefits fit into your income puzzle! With careful planning, you can maximize your joy and minimize your taxes!
« Back to Glossary Index