ACC 330 Module Two Adjusted Gross Income Assignment
Research Topic
The local civic center awarded a reward to a taxpayer without the taxpayer having to do anything or render any services to be eligible for the award: ACC 330 Module Two Adjusted Gross Income Assignment.
Primary Sources
Publication 525 (2022), Taxable and Nontaxable Income. Publication 525 (2022), Taxable and Nontaxable Income | Internal Revenue Service (irs.gov)
IRC Section 74. Prizes and awards. 26 USC 74: Prizes and awards (house.gov). Website: IRS.gov
Parameters
Amounts received as prizes and awards given primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or civic accomplishments are not included in gross income but only in the following cases/parameters:
- The recipient was chosen without taking any steps to enter the contest or proceeding.
- The payor transfers the prize or award to a governmental unit or organization listed in paragraph (1) or (2) of section 170(c) per a designation made by the recipient (Steinberg, 2021).
- The recipient is not obliged to provide significant future services as a condition of receiving the prize or award.
Example of Applying AGI
When the winnings are taxable, AGI is applied. Gambling or lottery earnings or losses would be two examples for this case.
Example of Not Being Able to Apply AGI
Awards and prizes that are relevant to the workplace and meet the requirements for employee achievement awards would not be included in AGI.
Tax Planning Implications
It will change the tax rate, which might push the annual income into a higher tax band. For instance, my tax rate would be 22% if I made $42,000 a year and filed as a single person. My income will rise to $43,000 if the reward is $1,000, but the rate will remain 22%. It simply relies on the annual income and the number of prizes or accolades received.
References
Steinberg, R. (2021). The design of tax incentives for giving. In The Routledge Handbook of
Taxation and Philanthropy (pp. 178-198). Routledge.
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