Define: Exempt Income

Exempt income refers to any type of income that is not subject to taxation. It is excluded from the calculation of taxable income.

Examples of exempt income include certain types of government benefits, such as Social Security benefits, welfare payments, and veteran’s benefits. Additionally, income from certain types of investments, such as municipal bond interest, may also be exempt.

In general, gifts are not considered taxable income for the recipient. However, there are certain exceptions and limitations, such as the annual gift tax exclusion limit set by the IRS.

Child support payments are generally not considered taxable income for the recipient. However, it is important to note that alimony or spousal support payments are taxable income.

Disability benefits, such as those received from Social Security Disability Insurance (SSDI) or private disability insurance policies, are generally considered exempt income and not subject to taxation.

Rental income is generally not considered exempt income and is subject to taxation. However, certain rental income may qualify for deductions or exemptions, depending on various factors such as the type of property and rental activity.

Generally, proceeds from life insurance policies received upon the death of the insured are considered exempt income and not subject to taxation. However, if the policy has an investment component, such as cash value or dividends, those portions may be subject to taxation.

Income from a Roth IRA is generally considered exempt income if certain conditions are met. Contributions to a Roth IRA are made with after-tax dollars, and qualified distributions, including earnings, are tax-free.

Workers’ compensation benefits are generally considered exempt income and not subject to taxation. However, it is important to consult with a tax professional as there may be exceptions or limitations depending on the specific circumstances.

Income earned abroad may be eligible for certain exemptions or exclusions under the Foreign Earned Income Exclusion (FEIE) or the Foreign Housing Exclusion (FHE). However, specific criteria must be met, and it is advisable to consult with a tax professional to ensure compliance with applicable tax laws.