Exemption with progression

Under the exemption-with-progression method, the state of residence provides an exemption from its tax for income earned in the state of source, but the residence state retains for itself the right to take the exempt income into account for the purposes of determining the marginal rate at which the taxpayer's non-exempt income is subject to tax. The exemption with progression method prevents a taxpayer from taking advantage of a lower tax bracket in the state of residence by earning income abroad.

Filed in: