tax-exempt income

1. Income that is not subject to federal, state, and/or local taxes. Examples of tax-exempt income include Social Security benefits, veteran benefits, welfare benefits, and federal tax returns. Income derived from these sources is usually paid from pooled accounts which the government has earmarked for payment of such benefits.

2. Investments: Income from such sources as qualified Roth IRA distributions, municipal bonds, academic scholarships, certain death benefits, and tax-exempt interest. The income derived from these sources is considered to have been previously taxed and is therefore, not subject to further taxation.