Question

Discuss the numerous ways our government includes income in taxation and excludes income from taxation.

Answer 1

In general, income tax is one which is imposed on the income of an individual by basing on several factors. There are few cases where the Income is not taken into consideration to impose or compute tax.

First let's look into few cases where the government includes income in taxation.

* Wages, salaries and tips derived from W-2 sent by the employer exhibiting how much was actually received.

* Fully taxable unemployment benefits.

* Pension and annuity payments to a large extent are taxable and later extent are exempted.

* Payment of premiums of disability insurance will be taxed if paid by the employer and exempted if borne by the employee himself.

* Alimony if received is not taxable and can also be deducted if paid.

*Prizes which are received will be taxed on the basis of FMV of the prize received.

* Income from gambling and lotteries are fully taxable.

* Awards received on account if job performance are taxable and exempted if received on the basis of years of service provided.

Now let's look on to the excluded incomes:-

* Gift where the giver owes the tax when.its a federal gift tax.

* Health and accident reimbursed benefits for medical expenses paid out of pocket are tax free.

*Public safely officer survivor benefits to a certain income limit is excluded if the person is killed in the line of duty.

* Scholarship and fellow ship grants if used for tuition fee payments are tax free.

* Roth IRA withdrawals are tax free up to the amount we have contributed.

* Veterans affairs disability payments are tax free.

* Compensation received for a personal injury at work under workers compensation statute is tax free.

*Social security benefits may be partially or fully.tax free on the basis of our income.