Legal Definitions - income exclusion

Definition: Income exclusion refers to an item of income that is excluded from gross income for tax purposes.

For example, the annual exclusion allows for up to $10,000 in nontaxable gift income during the calendar year. This exclusion serves as an estate-planning mechanism and eliminates the administrative inconvenience of taxing relatively small gifts. Another example is the employee-liability exclusion, which excludes coverage for injury to an employee arising from and in the course of employment with the insured.

These examples illustrate how income exclusion works in different contexts, such as tax and insurance policies. By excluding certain items of income, individuals and businesses can reduce their tax liability or limit their insurance coverage to specific situations.