Tax-Free Income

What Does Tax-Free Income Mean?

Tax-free income refers to income that is exempt from income taxes, such as interest earned from municipal bonds or coupons, which are typically tax-exempt at the federal level. Income can also include property or services received in place of money. Generally, all types of income are taxable unless explicitly excluded by law, such as life insurance payouts, certain disability payments, and other specified exemptions.

Insuranceopedia Explains Tax-Free Income

Tax-free income, also known as exempt income, refers to specific types or amounts of income that are not subject to federal income tax. Examples include academic scholarships, gifts below $10,000, and certain death and retirement benefits, which may also be exempt from state income taxes.

The Internal Revenue Service (IRS) allows individuals to claim an annual personal exemption, which, although modest, provides some untaxed income to cover essential needs like food, shelter, and clothing.