What is 'Exempt Income'

Exempt income refers to certain types or amounts of income not subject to federal income tax. Examples of exempt income include municipal bond income, which may also be exempt from state income taxes, a portion of retirement benefits, qualified Roth IRA distributions and academic scholarships. Also exempt are gifts of less than $10,000 and certain death benefits.

BREAKING DOWN 'Exempt Income'

The Internal Revenue Service (IRS) allows each individual to claim an annual personal exemption, along with an exemption for their spouse and any dependents. The personal exemption amount, although low, is set aside to allow for individuals to have a modicum of untaxed income to pay for basic sustenance items, such as food, clothing and shelter.

RELATED TERMS
  1. Exemption

    A deduction allowed by law to reduce the amount of income that ...
  2. Income

    Money that an individual or business receives in exchange for ...
  3. SEC Form T-4

    An application for exemption from certain sections of the Trust ...
  4. Double Exempt

    The status accorded to municipal bonds for which interest is ...
  5. Waiver Of Exemption

    A provision in a consumer credit contract or loan agreement that ...
  6. Nontaxable Dividends

    Dividends from a mutual fund or some other regulated investment ...
Related Articles
  1. Taxes

    Are You Missing Out On These Tax Exemptions?

    To lower your tax bill, make sure that you're taking all the exemptions that apply to you.
  2. Financial Advisor

    5 Top Tax Concerns Clients Face

    Clients of advisors may have more tax issues as their financial plans become more complicated.
  3. Taxes

    5 Groups That Don't Pay Taxes

    Now that you've paid your share, find out who didn't have to pay taxes this year.
  4. Retirement

    Is there any way to opt out of paying Social Security?

    Understand more about the purpose of the Social Security system and learn which groups of taxpayers are automatically exempt from the tax.
  5. Taxes

    8 States With Estate Taxes

    Understand the difference between the federal estate tax and state-specific estate taxes. Learn about some of the worst states with estate taxes.
  6. Retirement

    6 Places To Retire For Low Income Taxes

    These states offer unique tax benefits for their long-term citizens.
  7. Retirement

    Understanding the Widow’s Exemption

    A widow’s exemption generally refers to the amount a widow can deduct from her taxable income to reduce her tax burden.
  8. Taxes

    10 Sources of Nontaxable Income

    Taxes are often a deterrent from investing and saving. These financial practices will bring you no tax grief.
  9. Financial Advisor

    These 13 States Tax Your Social Security Benefits

    It may surprise many that Social Security benefits are taxed. The best way to not let it derail your tax situation is to plan for it. Here's how.
  10. Retirement

    Will You Pay Taxes During Retirement?

    Income taxes are one of the things that's certain in life. We'll explain the different tax situations when you retire.
RELATED FAQS
  1. What is the difference in tax liability between gross income and other kinds of income?

    Find out how the U.S. government taxes worker's earnings, whether it is gross income or income exempted or excluded from ... Read Answer >>
  2. What property / belongings can I keep after filing bankruptcy?

    Discover which types of property you can keep after filing bankruptcy by listing them as exempt from normal liquidation proceedings. Read Answer >>
  3. Can I roll a Traditional IRA into a 529 college account for my grandchild?

    The short answer: Not without paying taxes. But as with much of the tax code, there are various nuisances and exemptions ... Read Answer >>
Hot Definitions
  1. Money Market

    A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. ...
  2. Block (Bitcoin Block)

    Blocks are files where data pertaining to the Bitcoin network is permanently recorded.
  3. Fintech

    Fintech is a portmanteau of financial technology that describes an emerging financial services sector in the 21st century.
  4. Ex-Dividend

    A classification of trading shares when a declared dividend belongs to the seller rather than the buyer. A stock will be ...
  5. Debt Security

    Any debt instrument that can be bought or sold between two parties and has basic terms defined, such as notional amount (amount ...
  6. Taxable Income

    Taxable income is described as gross income or adjusted gross income minus any deductions, exemptions or other adjustments ...
Trading Center