Tax issues related to taxable and untaxable income

On Behalf of | Jul 3, 2018 | Firm News, Tax Issues

For some, tax preparation is on their minds all year long. A Pennsylvania worker may have numerous sources of income, run a business or simply fear that again this year, he or she will owe hundreds or thousands more than anticipated. When these tax issues arise, it may help to seek professional guidance. A solution to the issue may begin with understanding which sources of income are taxable and which are not.

In most cases, payment for work is taxable. Whether this is a paycheck from an employer, tips from customers or a bonus for a job well-done, the recipient is required to include these amounts when calculating the income tax he or she owes. However, some work-related benefits are not taxable. For example, workers’ compensation benefits, combat pay and any disability benefits when the employee pays the premiums are tax-free.

Other sources of income that one does not have to claim on taxes include child support, life insurance benefits and inheritances. If a personal injury victim wins a jury award or settlement, that is tax-free. However, if the jury also awards punitive damages, the victim is responsible for paying taxes on that amount.

Someone in Pennsylvania with complex sources of income would do well to seek the assistance of an attorney when facing tax issues. It may be that estimating taxes quarterly would benefit the taxpayer who has certain types of income. Additionally, since the tax laws change annually, having an advocate who knows and understands the laws may reduce the stress of tax preparation all year long.

FindLaw Network