Exempt vs Non-Exempt

Last update : July 12, 2023

What is Exempt vs Non-Exempt?

The difference between exempt and non-exempt is the difference between not reporting their income and paying tax on it.

Taxable income is an amount of money that you earned from working or from investments. The IRS requires you to pay taxes on at least part of your money.

Non-exempt income is the amount of money that you have earned from working or from investments, but you are NOT required to pay taxes on it.

Employees who are exempt from overtime pay are typically paid a salary, rather than an hourly wage. This means that they are expected to complete a set amount of work, rather than a set number of hours of work.

Examples of non-exempt income:

It Includes interest, dividends, capital gains, and rental payments.

 Examples of Exempt income: 

It include federal, state, and social security taxes.

Exempt employees (such as executives, managers, exempt professionals and exempt administrators) have a number of special protections under the law. They include the ability to sue employers for discrimination, retaliation, and wrongful termination. Employees who qualify for exemption are generally free to negotiate a labor agreement since they do not have the same protection as non-exempt employees.

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