What is a Tax exclusion?
A tax exclusion is a provision that allows taxpayers to exclude specific types of income from their taxable income calculations, effectively reducing their overall tax liability. Unlike deductions that reduce taxable income after it's recognized, exclusions prevent certain income from being taxable in the first place. Common examples include municipal bond interest, Health savings account contributions, and certain employer-provided benefits that are excluded from employee taxable income calculations under federal tax law.
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