What is the Income Exclusion Rule?

In a tax system, an income exclusion is defined as a rule that distinguishes taxable income from non-taxable income. In the United States, the Internal Revenue Service developed the concept of income exclusion, there are certain incomes that qualify for income exclusion as stipulated by the IRS. The types of income that are admissible under the income exclusion rule are, life insurance policies, death benefits, municipal bond income, welfare income and child support proceeds.

How Does the Income Exclusion Rule Work?

Incomes that are not taxable are meant meant to be reported when a Form 1040 is being filed, they are covered by the income exclusion rule. All incomes that are non taxable have no restriction as to the amount of money that the income should be. This means there is no maximum amount to be received. Incomes under the income exclusion rules are tax-exempted, since most of the income is to benefit the recipient and support individuals with certain challenges, they are not taxed.

Income Exclusion Rules and Social Security

Income exclusion rule applies strictly to some categories of income, incomes that are non-taxable are spelled out by the Internal Revenue Service. Ordinarily, not all money received by an individual is an income, there is a criteria for a sum of money to be regarded as income. Majorly, any money generated through social security is not an income, so also is generated when a social service agency makes repayment by a service previously rendered by an individual. Also, certain incomes fall under the social security income exclusions, incomes of this nature are also compiled by IRS.

Principal Earned Income Exclusions

There are certain income exclusion rules applicable to principal earned income of individuals. Generally, $65 of an individual's principal earned income per month is non-taxable. This is in addition to a half of whatever is left after the $65 has been excluded from being taxed. For individuals who have o other means of income aside from their principal earnings, they are entitled to up to $85 income tax exclusion. Welf-support and work expenses of a blind worker, as well as impairment-related work expenses of the disabled person also fall under principal earned income exclusion. Princical unearned income exclusion cover the following;

• Exclusion on money (income) meant for creating a self-support system for a blind or disabled person.
• $20 from an individuals unearned income monthly.
• An exclusion of the first $60 of income earned irregularly in a quarter.
• Income generated through state assistance due to need.
• Subsidies on rent covered by HUD programs.

In the United States, as part of the income tax exclusion rule, premium generated from an employer-sponsored health insurance policy cannot be taxed. This tax exclusion means that an employee can get a health insurance sponsored by an employer without paying any tax on such benefit. Premiums for health insurance are tax-exempted both at the federal and state level.