Income Exclusion Rule

AAA

DEFINITION of 'Income Exclusion Rule'

A rule that sets aside certain types of income as nontaxable. There are many types of income that qualify under this rule, such as life insurance death benefit proceeds, child support, welfare and municipal bond income. Income that is excluded is not reported anywhere on Form 1040.

INVESTOPEDIA EXPLAINS 'Income Exclusion Rule'

Generally, there is no limit to the amount of this type of income that can be received. One exception is municipal bond interest, which may be counted back as an alternative minimum tax preference item. Income that is excluded from taxation is generally accorded this status as a measure of relief for the recipient (or else as the result of powerful lobbying, as is the case with life insurance.)

RELATED TERMS
  1. Transfer-For-Value Rule

    The stipulation that, if a life insurance policy (or any interest ...
  2. Income Tax

    A tax that governments impose on financial income generated by ...
  3. Taxes

    An involuntary fee levied on corporations or individuals that ...
  4. Deduction

    Any item or expenditure subtracted from gross income to reduce ...
  5. Tax Credit

    An amount of money that a taxpayer is able to subtract from the ...
  6. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
RELATED FAQS
  1. I sold my house. Can I exclude the gain from my income?

    Generally, you are required to include the gain from the sale of your home in your taxable income. However, if the gain ... Read Full Answer >>
  2. How do I change my contingent beneficiary?

    Keeping your beneficiary designations up to date is an important aspect of comprehensive estate planning. Listing a primary ... Read Full Answer >>
  3. What's the difference between a collateralized debt obligation (CDO) and a collateralized ...

    A collateralized mortgage obligation, or CMO, is a type of mortgage-backed security (MBS) issued by an lender that handles ... Read Full Answer >>
  4. If both the primary and contingent beneficiaries are unavailable, what happens to ...

    One of the most common mistakes in estate planning is not keeping beneficiary designations up to date on life insurance policies ... Read Full Answer >>
  5. What types of insurance policies have contingent beneficiaries?

    A contingent beneficiary is a person designated to receive the benefits of an insurance policy or retirement account if the ... Read Full Answer >>
  6. Under what circumstances will a contingent beneficiary receive an insurance payout?

    A contingent beneficiary is someone who receives the proceeds of an insurance policy if the person named as the primary beneficiary ... Read Full Answer >>
Related Articles
  1. Bonds & Fixed Income

    The Basics Of Municipal Bonds

    Investing in these bonds may offer a tax-free income stream but they are not without risks.
  2. Taxes

    Avoid Tricky Tax Issues On Municipal Bonds

    Learn the rules every investor should know before buying into this "tax-free" investment.
  3. Options & Futures

    How To Avoid Taxation On Life Insurance Proceeds

    Decrease the value of your taxable estate and prevent the tax man from getting you one last time.
  4. Options & Futures

    The Disability Insurance Policy: Now In English

    Learn to translate this complicated policy so you can rest assured you're covered.
  5. Options & Futures

    Getting Started On Your Estate Plan

    With some preparation, you can save your heirs from paying a hefty estate tax. Here are some tips.
  6. Insurance

    Life Insurance: How Much Does Age Raise Your Rate?

    If you need life insurance, try to get it before your next birthday. Here's why.
  7. Insurance

    What Happens If Your Insurance Company Goes Bankrupt?

    When insurance companies go bankrupt or face financial difficulty, it's bad news for policy holders.
  8. Insurance

    Should You Borrow From Your Life Insurance?

    A loan against the cash value of your life insurance isn't the best way to raise money – but sometimes it's the best choice you have. How to decide.
  9. Insurance

    Life Insurance: How Long Does It Take To Get Paid?

    How to file for a life insurance payout – and how long it takes to receive it. Plus, new ways to plan for payments that provide an income stream.
  10. Trading Strategies

    How Good An Investment Is Life Insurance?

    Compared to other options, does it ever make sense to include cash-value life insurance in your investment portfolio? A look at the pros and cons.

You May Also Like

Hot Definitions
  1. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  2. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  3. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  4. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  5. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  6. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
Trading Center