A Tax Loophole Benefits the Other Guy. If it Benefits You, it is “Tax Reform”

As we go into tax filing season, individuals should consider which employment perquisites of office are taxable and which are not. Employees are compensated through salary and perks. Salary is generally fully taxable; perks may be taxable or non-taxable, depending upon statutory exemptions and administrative discretion. Perks can improve one’s standard of living, particularly if they are not taxable. That is why senior executives prefer to cap their salaries and draw benefits through perks of office, particularly is they are non-taxable or taxable at a rate lower than the 54% applicable to salaries above approximately $220,000.

With few exceptions, employees are taxable not only on their salary and wages, but also on in-kind personal benefits and perks that are directly attributable to their employment. The underlying principle is simple: taxpayers in equal financial circumstances should pay taxes in equivalent amounts. However, applying the principle in practice is complicated and depends upon exemptions and discretionary administrative interpretations.

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