What Does It Mean to Be Tax-Exempt? Definition, How Tax Exemptions Work

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- Federal: $79 to $139. Free version available for Simple Form 1040 returns only.
- State: $0 to $69 per state.
- Expert help or full service filing is available with an upgrade to Live packages for a fee.
What does tax-exempt mean?
What qualifies you to be a tax-exempt individual?
1. Are you exempt from withholding tax?
- You got a refund of all your federal income tax withheld last year because you had no tax liability.
- You expect the same thing to happen this year
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2. Did you receive income that isn't taxable?
3. Are you exempt from minimum wage and overtime rules?
- Federal: $79 to $139. Free version available for Simple Form 1040 returns only.
- State: $0 to $69 per state.
- Expert help or full service filing is available with an upgrade to Live packages for a fee.
What is a tax exemption?
The difference between tax exemptions, tax deductions and tax credits
- Tax exemptions whittle down what counts as income in the first place; that is, exemptions usually come right off the top.
- Tax deductions generally are expenses you’ve incurred that whittle down the amount of your income that's subject to tax.
- Tax credits are dollar-for-dollar reductions in your tax bill.
Article sources
- 1. Internal Revenue Service. Exempt Organization Types. Accessed Mar 26, 2024.
- 2. Internal Revenue Service. Topic No. 753 Form W-4 – Employee's Withholding Certificate: Exemption From Withholding. Accessed Mar 26, 2024.
- 3. Legal Information Institute. 26 U.S. Code § 61 - Gross Income Defined. Accessed Mar 26, 2024.
- 4. Internal Revenue Service. Be Tax Ready – Understanding Tax Reform Changes Affecting Individuals and Families. Accessed Mar 26, 2024.
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