Earned Income§ 416.1110. What is earned income.Earned income may be in cash or in kind. We may include more of your earned income than you actually receive. We include more than you actually receive if amounts are withheld from earned income because of a garnishment or to pay a debt or other legal obligation, or to make any other payments. Earned income consists of the following types of payments: Show
(a) Wages —(1) Wages paid in cash—general. Wages are what you receive (before any deductions) for working as someone else's employee. Wages are the same for SSI purposes as for the social security retirement program's earnings test. ( See § 404.429(c) of this chapter.) Wages include salaries, commissions, bonuses, severance pay, and any other special payments received because of your employment. (2) Wages paid in cash to uniformed service members. Wages paid in cash to uniformed service members include basic pay, some types of special pay, and some types of allowances. Allowances for on-base housing or privatized military housing are unearned income in the form of in-kind support and maintenance. Cash allowances paid to uniformed service members for private housing are wages. (3) Wages paid in kind. Wages may also include the value of food, clothing, shelter, or other items provided instead of cash. We refer to this type of income as in-kind earned income. However, if you are a domestic or agricultural worker, the law requires us to treat your in-kind pay as unearned income. (b) Net earnings from self-employment. Net earnings from self-employment are your gross income from any trade or business that you operate, less allowable deductions for that trade or business. Net earnings also include your share of profit or loss in any partnership to which you belong. For taxable years beginning before January 1, 2001, net earnings from self-employment under the SSI program are the same net earnings that we would count under the social security retirement insurance program and that you would report on your Federal income tax return. (See § 404.1080 of this chapter.) For taxable years beginning on or after January 1, 2001, net earnings from self-employment under the SSI program will also include the earnings of statutory employees. In addition, for SSI purposes only, we consider statutory employees to be self-employed individuals. Statutory employees are agent or commission drivers, certain full-time life insurance salespersons, home workers, and traveling or city salespersons. ( See § 404.1008 of this chapter for a more detailed description of these types of employees). (c) Refunds of Federal income taxes and advance payments by employers made in accordance with the earned income credit provisions of the Internal Revenue Code. Refunds on account of earned income credits are payments made to you under the provisions of section 32 of the Internal Revenue Code of 1986, as amended. These refunds may be greater than taxes you have paid. You may receive earned income tax credit payments along with any other Federal income tax refund you receive because of overpayment of your income tax, (Federal income tax refunds made on the basis of taxes you have already paid are not income to you as stated in § 416.1103(d).) Advance payments of earned income tax credits are made by your employer under the provisions of section 3507 of the same code. You can receive earned income tax credit payments only if you meet certain requirements of family composition and income limits. (d) Payments for services performed in a sheltered workshop or work activities center. Payments for services performed in a sheltered workshop or work activities center are what you receive for participating in a program designed to help you become self-supporting. (e) Certain royalties and honoraria. Royalties that are earned income are payments to an individual in connection with any publication of the work of the individual. (See § 416.1110(b) if you receive a royalty as part of your trade or business. See § 416.1121(c) if you receive another type of royalty.) Honoraria that are earned income are those portions of payments, such as an honorary payment, reward, or donation, received in consideration of services rendered for which no payment can be enforced by law. (See § 416.1120 if you receive another type of honorarium.) [45 FR 65547, Oct. 3, 1980, as amended at 48 FR 23179, May 24, 1983; 50 FR 48574, Nov. 26, 1985; 56 FR 3212, Jan. 29, 1991; 59 FR 43471, Aug. 24, 1994; 75 FR 1273, Jan. 11, 2010; 75 FR 54287, Sept. 7, 2010]
 kate_sept2004/Getty Images
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here’s an explanation for What is gross income?Gross income refers to the total earnings a person receives before paying for taxes and other deductions. The amount that remains after taxes are deducted is called net income. When looking at a pay stub, net income is what’s shown after taxes and deductions. Net income is always lower than gross income unless the person is exempt from paying taxes and has no deductions. How gross income worksGross income typically comes from a paycheck, which can comprise a combination of hourly wages, salary, commission and bonuses. But gross income can come from other sources such as annuities, alimony, pension, capital gains, rental income, royalties and income from self-employment. These forms of income are often only partly subject to taxation. Other sources of gross income subject to taxation are:
Some examples of nontaxable income include inheritance, municipal or state bonds, workers’ compensation payments and life insurance proceeds. Employers withhold state and federal income taxes, Medicare and Social Security taxes from your paycheck before you receive it. For business owners, self-employed and independent contractors/freelancers, payment is received as gross income and it is their responsibility to pay their share of taxes. A business’s gross income is calculated as gross revenue minus the cost of goods sold (COGS) and may be referred to as gross margin or gross profit margin as a percentage. Example of gross incomeHere is an example of what gross income looks like for an individual on a weekly basis:
Here is an example of what gross income might look like on an annual basis:
To determine a business’s annual gross income, here is an example:
Why understanding gross income is so importantGross income is what is used by lenders to determine how much they will allow someone to borrow for a loan, like an auto loan or mortgage. The lender will determine how much to lend based on the individual’s debt-to-income ratio, or DTI. The DTI is determined by dividing monthly debt payments by monthly gross income. The higher someone’s DTI, the less likely a lender will want to loan money and the higher the interest rate on the loan will be. Ideally, DTI should be no higher than 36 percent; however, some lenders will lend as high as 50 percent DTI. Gross income vs. net incomeThe total amount of pay received is the gross income, while the net income is the remaining amount after taxes and deductions are removed. Deductions could include:
Most deductions lower taxable income. These are known as pretax deductions. Other deductions, such as contributions to a Roth IRA and certain voluntary benefits, do not lower taxable income. These are known as post-tax deductions. Net income is often called take-home pay or disposable income. Net income is what is leftover to spend and can be used to make a budget. Living expenses, bills, debt payments and other obligations should be budgeted out of net income rather than gross income. Making a budget based on gross income will likely cause the budget to be short each month, because the amount required for the budget is reduced by the deductions and taxes taken. Here’s an example of why a budget should not be based on gross income without accounting for deductions and taxes. Sally has a monthly gross income of $4,000 and a net income of $3,000. She creates a budget with her gross income amount with total expenses equalling $3,500. Because Sally only brings home $3,000, she is short $500 on the monthly budget. Sally will either have to adjust her budget to account for the $500 or find a way to increase her net income by $500 to cover the remaining expenses. You can sign up for Bankrate’s myMoney tool to categorize your spending transactions, identify ways to cut back and improve your financial health. Learn more:
Mandy Sleight has been a licensed insurance agent since 2005. She has three years of experience writing for insurance websites such as Bankrate, MoneyGeek and The Simple Dollar. Mandy writes about auto, homeowners, renters, life insurance, disability and supplemental insurance products. Reviewed by Senior wealth manager, LourdMurray What does net pay mean?Net pay means take-home pay or the amount employees earn after all payroll deductions are subtracted from their gross pay.
What is another word for payroll?What is another word for payroll?. What is your gross income?Gross income includes your wages, dividends, capital gains, business income, retirement distributions as well as other income. Adjustments to Income include such items as Educator expenses, Student loan interest, Alimony payments or contributions to a retirement account.
What is it called when an employee is paid?Payroll is the process of paying employees. Employers must handle payroll each pay period so employees receive their wages.
|
This term refers to the earnings paid to an employee after taxes and other obligations are met.
zusammenhängende Posts
Urheberrechte © © 2024 paraquee Inc.
