The guardian., 1956-02-11

ny SdulOS w. OdldFdu, C.E "a
This is the second in a
series of eight articles on
Federal and State Income
Taxes distributed by Boston
Chapter of the National AS
ISOLATION of Cost Accountants.
Where can I get the an
swer to question on Federal
taxes?
If you have can unusual tax
problem, you should go to the
local office of the Director Of
Internal Revenue or to a COM
petent tax man.
Is the pension I receive
from my former employer con-
sidered taxable income?
Your pension is considered
taxable income unless you
contributed a certain amount
to the pension plan through
payroll withholdings. An il
lustration will help to clarity
the latter situation:
Assume that a man retired
on January /, 1855, at age 65.
During his period of employ
ment he contributed a total
of $4,000 toward a pension plan.
The $4,000 represents his in
vestment in the pension plan.
Assume further that the in
diyidual received $3.50 a month
during 1855 from his pension.
Of the $1,000 received in 1855,
he will have to report $1,000.
The remainder, $500, is con-
sidered a return of his in
Vestment. The taxpayer will
continue to report the $1,000
each year for the remainer of
his life.
The $500 exclusion is deter
mined in the following way:
Divide the investment in the
contract ($9000) by the an
nual payments ($1800) multi
piled by the number of years
a person of the taxpayers age
is expected to live (this num-
ber can be obtained from
actuarial tables available
either from insurance firms or
the Director of Internal Re-
venue). In the case of the
taxpayer in this example the
multiple is Is, so the $4,000
investment is divided by $1,000
times IS, or $4,000. The re-
sulting fraction is third,
which is the proportion of the
annual payments of $1,000
which is considered a return
of investment and not sub
ject to tax. Thus, subtracting
one-third, or 5000, the tax
payer would report $1,000 of his
pension income for the year
as taxable.
retired on January l, 1855,
and I am receiving a pension
of 500 a month. During my
period of employment I paid
$4,000 into the pension fund.
This was in addition to the
amount contributed by the
employer. How should I report
this income in my 1855 tax
return?
You will not have to report
your pension until you have
received $4,000. Thereafter, the
entire amount received each
year will be considered tax
able income. Your pension is
covered by a special rule
which applies when both emp
loyer and employee contribute
to the cost of the annunity
and the annunity payments
during the first three years
will equal or exceed the emp
loyee's contribution.
Are contest awards and
prizes considered taxable in
come?
Generally speaking, yes. The
payment received is usually
deemed to be consideration for
services rendered by the con-
testant to the company max
ing the award. In some in
stances, however, the amount
received may be considered a
gift rather than income for
services rendered. A gift is
not taxable income.
l am employed at a salary
OF $120 a week. I was absent
from work because of sickness
for three weeks. During this
period my employer paid me
my regular salary. How should
1 report this on my 1855
Federal return?
If your employer has a wage
continuation plan and you
were injured or hospitalized
for at least one day during
your absence, you may deduct
$500 as "Sick Pay" on page ]
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