Intuit Academy Tax Practice Exam 2026 - Free Tax Practice Questions and Study Guide

Tax-exempt interest income is generally not reportable on Form 1040. This type of income, such as interest from municipal bonds, is specifically designated as tax-exempt under the Internal Revenue Code. While taxpayers need to report their total income on their tax return, tax-exempt interest is an exception. It is neither included in gross income nor taxable, meaning it is not subjected to income tax.

However, tax-exempt interest must still be reported in certain contexts, such as when calculating modified adjusted gross income for some tax credits or benefits. Despite this, it does not appear as taxable income on the tax return itself. It’s essential for taxpayers to maintain awareness of tax-exempt interests and document them for informational purposes, even though they do not impact tax liability directly. Thus, the characterization of tax-exempt interest income being not reportable aligns with established tax regulations.