Exempt Income

Exempt income is income that is not subject to income tax. This can include income from certain types of investments, such as municipal bonds, as well as income from retirement accounts and other tax-advantaged savings plans.

There are a number of different types of exempt income. Some of the most common types include:

• Interest income from municipal bonds
• Dividend income from certain types of investments, such as mutual funds and exchange-traded funds (ETFs)
• Capital gains from the sale of certain types of investments, such as stocks and bonds
• Income from retirement accounts, such as 401(k) plans and IRAs
• Income from certain types of government programs, such as Social Security and veterans' benefits

The amount of exempt income you can have depends on your filing status and other factors. For example, single taxpayers can have up to $12,950 of interest income from municipal bonds in 2023. Married taxpayers filing jointly can have up to $25,900 of interest income from municipal bonds.

It is important to note that exempt income is not the same as tax-free income. Tax-free income is income that is not subject to income tax, even if it is earned from a taxable source. For example, interest income from municipal bonds is exempt from federal income tax, but it is still subject to state and local income taxes.

If you have a lot of exempt income, you may be able to reduce your taxable income and lower your overall tax bill. However, it is important to be aware of the rules governing exempt income so that you do not accidentally claim income that is not exempt.

Here are some additional tips for claiming exempt income:

• Keep good records of your exempt income. This will help you to track your income and ensure that you are claiming all of the exemptions that you are entitled to.
• Be aware of the different types of exempt income. Not all types of income are exempt from tax, so it is important to know which types of income you can claim.
• If you have any questions about exempt income, consult with a tax professional. A tax professional can help you to understand the rules governing exempt income and ensure that you are claiming all of the exemptions that you are entitled to.