Services, goods, or money you receive might be considered as taxable income. That means you have to pay tax on their value. You pay tax on every income unless it’s identified by the Internal Revenue Service or the tax authority in your country as non-taxable.
To help you understand what are taxable benefits and non-taxable benefits more, this article has outlined below the different types of income you may receive. They’re listed under taxable income or non-taxable income, depending on whether or not you’ll have to pay tax on their value when receiving them.
The following are benefits you receive that are taxed by the government:
Compensation is the value received for an individual’s, business’s, or organization’s services, products, or properties. It includes wages (W-2), commissions (or percentages), bonuses (or percentages), and other similar items. Compensation has two basic parts: the tangible and non-tangible components. Wages, commissions, and bonuses are subject to state income tax (federal) and social security (federal and/or state). An employee’s personal use of employer-owned company vehicles and other company-owned personal properties is subject to both state income tax, as well as FICA and FUTA taxes.
2. Income from fringe benefits
The Internal Revenue Code (IRS) of 1986 gives employers the right to deduct a percentage of their employees’ fringe benefits from their taxable income. However, the law doesn’t specify that the employee must receive a benefit in return for their employment. In order to be eligible for the tax deduction, an employee must work for the employer for at least 12 continuous months. If the employee works less than 12 months with an employer and becomes unemployed within the first year after employment, they can still qualify.
An employee may also be eligible for the tax deduction for the employer’s contribution to any group health plan. However, if the employee is covered under an eligible group health plan through their employer, the employee can’t claim the tax deduction for an individual or family coverage.
3. Miscellaneous income
The term ‘miscellaneous income’ can refer to two things. It can mean the income that you make from an asset, such as a rental property, or it can mean your income from your investment portfolio, which is money that you have accumulated from the sale of securities, shares, bonds, and other financial instruments. Miscellaneous income is considered as a taxable benefit.
The following are benefits you receive that may not be taxed by the government:
Inheritance tax has been in effect as early as 1892. It’s when an inheritance tax was put into effect on property transferred by a dead person to another person. After a person dies, their assets must go either to another person or somewhere else. That means that if assets are being transferred in a will, a trust, or a last will and testament, then, inheritance taxes may not be required. However, if the property is being transferred without a will or a trust, then, inheritance taxes are required.
Another category of assets that are tax-exempt is when an asset is transferred between spouses or between interstate estates. These assets aren’t taxed, although inheritance taxes are still required.
2. Cash rebates
If you’ve been looking for ways to save money on your grocery bills and, yet, still have the same amount of money in your pocket, then, you may be interested in the fact that there are companies out there that will be offering cash rebates on purchased items. These types of rebates are usually offered through the use of rebates and coupons that are provided to you through the Internet or other types of outlets. The good thing about cash rebates is that they’re also not taxed by the government.
3. Alimony payments
Alimony payment isn’t only for maintenance of the relationship, but it also serves as an incentive to the parties to work out the marital problem. If a party who’s receiving alimony is able to keep it as alimony, they would be benefiting from the agreement. If they stop paying, the courts would have the power to make the other party pay full amount, which means that they’re legally free from the obligation. Alimony can also be tax-free if you’re the one paying the payments. So, the amount of alimony can be deducted from your taxable income.
Tax filing is very important. For you to carry out the process correctly and to avoid any problems with the IRS, it’s important that you know what are those considered as taxable and the ones that are non-taxable. The list of taxable and non-taxable benefits in this post should guide you, whether you’re an employee or a business owner.