Exclusion tax refers to certain types of income that taxpayers are legally allowed to omit from their gross income when filing their income tax returns. These exclusions reduce the amount of income that is subject to taxation, potentially lowering an individual’s overall tax liability. Common examples include employer-provided health insurance, certain gifts and inheritances, municipal bond interest, and some educational scholarships. Unlike deductions or credits, which are applied after gross income is calculated, exclusions prevent specific income from being included in the first place. Understanding income exclusions is an important part of effective tax planning and compliance with tax regulations.