unclaimed income

During the year 2000, I worked (and still do) in a residential situation where I was (and still am) being paid cash. I don't know how to claim this income when I file taxes, and I don't know if I'll get into trouble. I've never worked "under the table" before, and am not sure how to confront my boss in the matter. This was my sole job last year, and other than child support, was my only source of income. Can you give me advice on what to do?
Sincerely, MeatballinMI

Domestic work

If you are an independent contractor, then you should report the income on your Form 1040 on Schedule C, business income. That will show that you have your own business and that the income is from that business. You will have to pay your own social security tax on this income (called self employment tax), but you can deduct any business expenses you have.

The alternative is to report this to the IRS, in which case, your employer may get into some trouble about not withholding tax and reporting the income.

If you decide that you are liable to pay Tax on that Income, listen to loku. He is well versed in that area. If you decide you are not liable to pay taxes (and you probably are not)on that income, simply don't. You want more info? Ask more questions.

Tax liability

It is illegal to receive taxable income and not report it on your tax return unless you do not have to file a return because of very low income (if you are single and under 65, the amount is $7,200).

Some people, who receive income and do not report it, do not get caught, but it is still illegal, although a lot of people without legal training argue that the tax or some phase of it is not constitutional.

"It is illegal to receive taxable income and not report it on your tax return.." TRUE

"unless you do not have to file a return because of very low income.." ALSO TRUE, but not the end

Do you have Taxable Income?

Despite "common knowledge" to the contrary, the income of most Americans is not subject to the United States federal income tax. The strict limits on federal power imposed by the Constitution prohibited Congress from imposing a tax on the incomes of United States citizens who live and work exclusively within the 50 states, and the federal statutes and regulations demonstrate that Congress did not impose such a tax. This was not due to an oversight, or to some technical imperfection in the legislative process. Congress never even attempted to impose such a tax. Instead, a limited income tax was imposed, and was worded in such a way to give the impression that it was applicable to the income of most Americans. However, a more in-depth study of the federal statutes and regulations reveals that the tax is far more limited in scope than the public has been led to believe.

Section 1 of the Title 26 statutes imposes the "income tax" in five different categories (unmarried people, married people filing jointly, etc.). In each case, the wording reads "there is hereby imposed on the taxable income of…" The law generally defines "taxable income" in the following section of the statutes:

"Sec. 63. Taxable income defined
(a) In general - …the term "taxable income" means gross income minus the deductions allowed by this chapter…" [26 USC § 63]

In other words, when someone determines his "gross income," and then subtracts all allowable deductions, the remainder is "taxable income." (So for income to be "taxable income," it must first be "gross income.") The following section of the statutes gives a general definition of "gross income":

"Sec. 61. Gross income defined
(a) General definition - … gross income means all income from whatever source derived, including (but not limited to) the following items:
(1) Compensation for services...;
(2) Gross income derived from business;
(3) Gains derived from dealings in property;
(4) Interest;
(5) Rents;
(6) Royalties;
(7) Dividends;... [more items listed]" [26 USC § 61]

To review, the "income tax" is imposed on "taxable income," which means "gross income" minus deductions. "Gross income" is defined in 26 USC § 61 as "all income from whatever source derived." The phrase "from whatever source derived" may initially appear all-encompassing, but for the specifics about "income from sources," the reader of the law is repeatedly referred to Section 861 and following (of the statutes) and the related regulations. For example, in the full version of Title 26 (with all notes and amendments) which appears on Congress’ own web site, Section 61 itself has the following cross-reference:



"Income from sources -
Within the United States, see section 861 of this title.
Without the United States, see section 862 of this title."

The sections which are specifically for determining taxable income from sources within the United States are 26 USC § 861(b) of the statutes, and the corresponding regulations found at 26 CFR § 1.861-8. (The regulations under Section 63, the section defining "taxable income," do not explain how to determine taxable income.) While the relevance of these sections may quickly become obvious, the repeated documentation is important since most tax professionals are already aware that these sections are not about the income of most Americans.

Section 861(b) (as mentioned above) is entitled "Taxable income from sources within the United States." This section states that taxable income from sources within the United States is the gross income described in 861(a) minus allowable deductions. The regulations under Section 861 state (in the first paragraph):

"The statute provides for the following three categories of income:
(1) Within the United States. The gross income from sources within the United States… See Secs. 1.861-2 to 1.861-7, inclusive, and Sec. 1.863-1. The taxable income from sources within the United States… shall be determined by deducting therefrom, in accordance with sections 861(b) and 863(a), [allowable deductions]. See Secs. 1.861-8 and 1.863-1." [26 CFR § 1.861-1(a)(1)]

"The operative sections of the Code which require the determination of taxable income of the taxpayer from specific sources or activities and which gives rise to statutory groupings to which this section is applicable include the sections described below.
(i) Overall limitation to the foreign tax credit…
(ii) [Reserved]
(iii) DISC and FSC taxable income… [international and foreign sales corporations]
(iv) Effectively connected taxable income. Nonresident alien individuals and foreign corporations engaged in trade or business within the United States…
(v) Foreign base company income…
(vi) Other operative sections. The rules provided in this section also apply in determining--
(A) The amount of foreign source items…
(B) The amount of foreign mineral income…
(C) [Reserved]
(D) The amount of foreign oil and gas extraction income…
(E) (deals with Puerto Rico tax credits)
(F) (deals with Puerto Rico tax credits)
(G) (deals with Virgin Islands tax credits)
(H) The income derived from Guam by an individual…
(I) (deals with China Trade Act corporations)
(J) (deals with foreign corporations)
(K) (deals with insurance income of foreign corporations)
(L) (deals with countries subject to international boycott)
(M) (deals with the Merchant Marine Act of 1936)" [26 CFR § 1.861-8(f)(1)]

None of these "sources" apply to United States citizens who live and work exclusively within the United States. (Federal "possessions," such as Guam, Puerto Rico, etc., are considered "foreign" under the law.) This is the only list of "sources" in Part I of Subchapter N, or the regulations thereunder, which (as the regulations say) "determine the sources of income for purposes of the income tax."

"..people without legal training argue that the tax or some phase of it is not constitutional." TRUE - but they would be wrong. The Supreme Court found the 16th Amendment DID NOT give congress any new taxing power. It didn't actually change a thing. As written, the Income Tax law are Constitutional, because they are based on Voluntary Self Assesment.

Beware

People go to jail with those arguments. It is not legal to advise people to commit a crime. When you tell them not to file income tax returns, that is a crime.

I understand what your saying loku. That is why I tell people THEY must decide if they have taxable income or not.

Tons of folks have gone to jail for allot of different arguments. Simply because they ignored certain things. One cannot simply use what I said here and expect not to have conflict. However, if the law is followed exactly, one can expect not to pay Income Taxes one is not liable for, for years and years. Also, it is not a crime to not pay Income Tax that your not liable for.

I believed the same things and way that you do loku. I just got tired of listening to all the differences, and wanted to make up m own mind. That's when I pick up the law and read it. That is why I ask for other to support what they say, with the law.

One more thing loku, just to qualify my statements here. They are not meant to incite, but to inform (as are yours). This is a discussion, not an argument and I thank you for helping to keep the peace.


[Edited by crager34 on 01-25-2001 at 02:17 PM]

What the law is

The law is what the courts say it is. It is not what you or I think it is. Nor is it what we want it to be.

Yet another statement that I agree with you on. But unlike what you appear to be doing, one must look at the entire law, to be fully informed. Not just excerpts.

gross income - defined and computed?

I live in Michigan, currently unemployed, with no income except for occasional disbursements from an estate trust as they sell off property. For purposes of claiming income, if I get a one-time disbursement of $40,000 how do I claim this as income for the purposes of Medicaid or reduced school lunch program? Is it $40K/12 months? What's the law?

crager34 said:

"
"Sec. 61. Gross income defined
(a) General definition - … gross income means all income from whatever source derived, including (but not limited to) the following items:
(1) Compensation for services...;
(2) Gross income derived from business;
(3) Gains derived from dealings in property;
(4) Interest;
(5) Rents;
(6) Royalties;
(7) Dividends;... [more items listed]" [26 USC § 61]

To review, the "income tax" is imposed on "taxable income," which means "gross income" minus deductions. "Gross income" is defined in 26 USC § 61 as "all income from whatever source derived." The phrase "from whatever source derived" may initially appear all-encompassing, but for the specifics about "income from sources," the reader of the law is repeatedly referred to Section 861 and following (of the statutes) and the related regulations. For example, in the full version of Title 26 (with all notes and amendments) which appears on Congress’ own web site, Section 61 itself has the following cross-reference:



"Income from sources -
Within the United States, see section 861 of this title.
Without the United States, see section 862 of this title."

Click to expand...

meatballinMI said:

During the year 2000, I worked (and still do) in a residential situation where I was (and still am) being paid cash. I don't know how to claim this income when I file taxes, and I don't know if I'll get into trouble. I've never worked "under the table" before, and am not sure how to confront my boss in the matter. This was my sole job last year, and other than child support, was my only source of income. Can you give me advice on what to do?
Sincerely, MeatballinMI

Click to expand...

**A: what the heck is a "residential situation?" In any case, you report the total amount you got paid each year as income. If you have expenses, then you can deduct those expenses when filing 1040 Schedule C.
Depending upon what you do and the hours, type of work etc. you may be considered an employee based on IRS or state laws.

Look at the dates. This thread is very old and has only been revised from a post riding the wave.

OP open up a new thread of your own.

mlenninger said:

I live in Michigan, currently unemployed, with no income except for occasional disbursements from an estate trust as they sell off property. For purposes of claiming income, if I get a one-time disbursement of $40,000 how do I claim this as income for the purposes of Medicaid or reduced school lunch program?

Click to expand...

OK, first of all, start your own post; don't resurrect one that's nearly 7 years old, cause we'll probably answer the original poster's question, not yours.

Second, money is not income. You are receiving disbursements from an estate. The estate representative is the only person who knows if you got a distribution of income (taxable), principle (not taxable), or both. The estate will file a tax return & give you a K1 listing the types of income your got & amounts. Anything not on a K1 should be a distribution of principle & not taxable to you.

Since this is a one time disbursement, it's probably principle & not taxable income. However, it is an asset that may need to be reported the same way you'd report a cash gift to those agencies. Just make sure you note that it's not income, nor will you receive it regularly.