What is tax exemption?

What Is Tax-Exempt? Tax exemption refers to a specific category of income, organization, or activity that is not subject to taxation by the government. It means that the income or organization is exempt from paying taxes to the government, resulting in a lower tax burden for the individual or entity.

What is exempt income?

Exempt income refers to certain types of income not subject to income tax. Some types of income are exempt from federal or state income tax or both. The IRS determines which types of income are exempt from federal income tax and the circumstances for each exemption. States have their own rules that define what counts as exempt income.

What are tax exemptions & tax-exempt entities?

A tax exemption excludes certain income, revenue, or even taxpayers from tax altogether. For example, nonprofits that fulfill certain requirements are granted tax-exempt status by the Internal Revenue Service ( IRS ), preventing them from having to pay income tax. Why Do Tax Exemptions and Tax-Exempt Entities Exist?