Skip to content
× FreshBooks App Logo
FreshBooks
Official App
Free - Google Play
Get it
You're currently on our US site. Select your regional site here:

Exemption: Meaning & Definition

Updated: January 18, 2023

An exemption is a legal term that refers to a situation where someone is excused from complying with a rule or requirement. Exemptions can apply to laws, regulations, rules, policies, procedures, and even court orders. 

The term “exemption” is typically used in the context of taxes, but it can also apply to other areas of the law.

In the sections below, you will learn more about the meaning of exemption. This guide covers the different types of exemptions, how to claim an exemption, and some examples.

List IconTable of Contents


    KEY TAKEAWAYS

    • Exemptions are a way to reduce your taxable income. 
    • You can claim a personal exemption for yourself, your spouse, and each of your dependents. 
    • You can also claim dependent care and adoption expenses as exemptions. 
    • Exemptions can save you money on your taxes.

    What is an Exemption?

    An exemption can be a reduction or waiver from payment of a tax. Exemptions are often granted to specific entities. i.e., senior citizens, charitable organizations, or taxpayers with low incomes. 

    There are different types of exemptions, which we cover in more detail below. Both government bodies and private organizations can grant exemptions.

    Save 40 Hours During Tax Season

    What Are The Types Of Exemptions?

    You can broadly classify exemptions into two categories: statutory exemptions and discretionary exemptions. Statutory exemptions are those provided for by law. Discretionary exemptions are those that are up to the discretion of the authorities to grant.

    Some of the common types of statutory exemptions include income tax, property tax, sales tax, and customs duty. Discretionary exemptions can include things like import duty and excise duty.

    Income tax exemption is the most common type of exemption. This is where you are not required to pay taxes on a certain amount of your income. The amount that you’re exempt from paying taxes on depends on your country’s tax laws.

    Property tax exemption applies to you if you’re a property owner. This is where you don’t have to pay taxes on the value of your property. It’s up to your country’s tax laws to dictate your exemption. You must be a property owner to get an exemption for property established.

    Sales tax exemption is where you aren’t required to pay taxes on the sale of certain items. Again, your local laws set your exemption level.

    Customs duty exemption is where you don’t have to pay taxes on goods that you import into your country.

    Discretionary exemptions can include things like import duty and excise duty. Import duty is a tax that you have to pay on goods that you import into your country. Excise duty is a tax that you have to pay on certain products that you manufacture in your country.

    You can claim an exemption from paying taxes on income, property, sales, or customs duty. The amount that you’re exempt from paying taxes on depends on your country’s tax laws.

    To claim an exemption, you need to fill out a form and submit it to the authorities. The form will ask for information about your income, property, sales, or customs duty.

    Other exemptions you might be able to claim include:

    Personal Exemptions

    You may be able to deduct a personal exemption for yourself as long as no one else can claim you as a dependent. The distinction of “can” is very important. They don’t have to claim you; only that they can.

    Dependency Exemptions

    You may be able to deduct an exemption for each of your dependents. A dependent is someone who has a financial relationship with you. 

    Dependent Children

    You can only deduct an exemption for your child if he or she meets the IRS definition of a dependent child. 

    Property Tax Exemptions

    You may be able to deduct a property tax exemption if you’re required to pay property tax on your primary residence.

    What Are Exemptions In Income Tax?

    An exemption is a type of deduction that allows a taxpayer to reduce their taxable income. An exemption reduces the amount of money that is subject to taxation, which in turn lowers the amount of taxes owed.

    Exemptions are often given for certain types of income, such as interest from government bonds or gifts received. There are also exemptions available for certain expenses. For instance, medical expenses or charitable donations.

    Income tax exemptions are available at both the federal and state level. The IRS provides a list of all federally recognized income tax exemptions. State income tax exemptions vary from state to state.

    To claim an exemption, taxpayers must fill out a tax return and submit it to the IRS or their state tax agency. Taxpayers should keep records of any exemptions claimed in case they’re audited by the IRS or their state tax agency.

    There are a few different types of exemptions that you can claim on a tax return. The most common type of exemption is the standard deduction, which is an exemption that is available to all taxpayers.

    The standard deduction is a set amount that you can deduct from your taxable income. This tax year, single taxpayers’ standard deduction is $12,950. For married couples filing jointly, it’s $25,900.

    Another type of exemption is the personal exemption. The personal exemption allows you to exempt a certain amount of your income from taxation.

    There are also a number of other exemptions that you may be eligible to claim, such as the earned income tax credit or the child tax credit. These credits can significantly reduce your tax liability.

    You can claim an exemption for yourself, your spouse, and your dependent children. Each dependent that you claim an exemption for will reduce your taxable income by a set amount.

    How To Claim An Exemption?

    You can claim an exemption by filing a form with the IRS. The most common form for claiming an exemption is the W-4. On Form W-4, you’ll list the number of allowances you’re claiming. 

    The more allowances you claim, the less tax will be withheld from your paycheck. You can also claim an exemption with a statement of filing Form 1040-EZ.

    It's Time For Owners To Own Tax Season

    Examples of exemptions

    Here are some examples of common exemptions:

    Dependent Care Expenses: These can include child care, elder care, or disabled adult care.

    Adoption Expenses: You can claim a tax credit for certain adoption expenses.

    Child Care Expenses: You can claim a tax credit for child care expenses.

    Moving Expenses: You can deduct certain moving expenses if you meet certain criteria.

    Student Loan Interest: You can deduct up to $2,500 of student loan interest per year to lighten your school tax burden.

    The requirements for exemption vary, so be sure to check your laws. You may need to be under certain income requirements to qualify.

    If you’re applying for exemption from school taxes, you’ll need to fill out an exemption application. If you can’t get full exemption, you might be able to get partial exemption. So don’t give up if you don’t get the answer you’re looking for right away. You may have other options.

    Summary

    Exemptions are reductions in the amount of taxes that you owe the government. They are not reductions in your taxable income. 

    There are many different types of exemptions you can claim, and you must meet the requirements of the exemption type in order to claim it. 

    Understanding exemptions and what types are available can help you save money at tax time and make the process less stressful.

    Less Taxin'. More Relaxin'

    FAQs About Exemption

    What is the difference between exceptions and exclusions?

    Exceptions and exclusions are both terms that refer to items that are not included or considered. The main difference is usually items specifically named or listed. Exclusions are more general and may not be as clear. 

    Laws or contracts can write some exemptions, while exclusions are often found in insurance policies. For example, most homeowner’s insurance policies have a list of exclusions, such as damage caused by floods or earthquakes.

    What is the difference between exemption and deduction?

    Deductions and exemptions are both ways to reduce your taxable income. A deduction is an expense that you can subtract from your gross income. An exemption is a specific amount of money that you’re allowed to exclude from your taxable income.

    Is it better to be exempt or nonexempt?

    The answer to this question depends on your individual circumstances. Exempt employees are not entitled to overtime pay. But they may have other benefits that nonexempt employees do not have. 

    Nonexempt employees are entitled to overtime pay. But they may not have other benefits that exempt employees have. You should speak with your employer to find out what is best for you.

    What exemptions can be claimed?

    There are two types of exemptions: personal and dependent. You can claim a personal exemption for yourself, your spouse, and each of your dependents. You can also claim dependent care and adoption expenses as exemptions.

    What is the difference between an exemption and a tax credit?

    A tax credit is a dollar-for-dollar reduction in your tax liability. An exemption is an amount of money that you’re allowed to exclude from your taxable income.

    What is the difference between an exemption and a tax deduction?

    A tax deduction reduces your taxable income. A tax exemption completely removes an amount of money from your taxable income.

    WHY BUSINESS OWNERS LOVE FRESHBOOKS

    553 HRS

    SAVE UP TO 553 HOURS EACH YEAR BY USING FRESHBOOKS

    $ 7000

    SAVE UP TO $7000 IN BILLABLE HOURS EVERY YEAR

    30M+

    OVER 30 MILLION PEOPLE HAVE USED FRESHBOOKS WORLDWIDE

    Try It Free for 30 Days. No credit card required. Cancel anytime.