Legal Definitions - tax-free

TAX-FREE

Tax-free means that something is not subject to taxation by law. It can also refer to interest earned on investments that is not subject to income tax.

• A tax-exempt charity is an organization that is not required to pay taxes on the money it receives from donations.
• Tax-exempt municipal bonds are investments that pay interest that is not subject to income tax.

These examples illustrate that tax-free means that something is exempt from taxation. In the case of a tax-exempt charity, it means that the organization does not have to pay taxes on the money it receives. In the case of tax-exempt municipal bonds, it means that the interest earned on the investment is not subject to income tax.