Definitions for "Tax-Exempt Income"
Income not subject to income tax under the tax law.
Municipal bonds and other incomes that were already taxed before being invested. p 24
Any income the Internal Revenue Service specifies is not subject to tax and is therefore excluded from your gross income. You might still need to report it on your tax return, but it will not be taken into account when calculating your tax liability. Tax-exempt income includes certain Social Security benefits, welfare benefits, nontaxable life insurance proceeds, Armed Forces family allotments, nontaxable pensions, and tax-exempt interest.