Legal Definitions - tax-exempt income

Tax-exempt income

Tax-exempt income is money that you earn from any source that the government does not include when calculating your income tax. This means that you do not have to pay taxes on this income. However, you may still need to report it on your tax return. Examples of tax-exempt income include:

• Employer-sponsored health insurance
• Social Security benefits
• Municipal bond interest
• Disability benefits

Some forms of income, such as inheritances and gifts, are also not included in income tax because they have their own tax systems that apply.

When you earn money, you usually have to pay taxes on it. However, there are some types of income that the government does not tax. These are called tax-exempt income. For example, if your employer provides you with health insurance, the value of that insurance is not included in your taxable income. Similarly, if you receive Social Security benefits, you do not have to pay taxes on that money. Municipal bond interest and disability benefits are also examples of tax-exempt income.