Tax-Free Income

Definition - What does Tax-Free Income mean?

Tax-free income is the income received that is not subject to income taxes, such as municipal bonds or coupons. These are tax exempted at the federal level. Income may also be any property or services you receive apart from money. All types of income are taxable unless the law states that it is excluded, such as life insurance pay-outs, disability payments, and others.

Insuranceopedia explains Tax-Free Income

Tax-free income is also referred to as exempt income, where certain types or amounts of income are not subjected to federal income tax. Academic scholarships, gifts less than $10,000, and some death and retirement benefits are examples that are exempted from state income taxes.

Individuals are allowed by the Internal Revenue Services to claim an annual personal exemption, which may be low, yet is being set aside so that a little of the untaxed income may be used for basic needs like food, shelter, and clothing

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