Saturday, June 3, 2023
  • Login
  • Tax Rates 2023
    • Pension Plans Limits 2023
    • Estate & Trust
    • 2022 Tax Brackets
      • USA State and Local Taxes
      • EIC Table 2023, 2022
    • Tax Bracket 2021
    • Tax Brackets 2020
    • Tax Bracket 2019
      • Long Term Capital Gains Rate- 2019,2018,2017
      • 2019 & 2018 Standard Deduction
      • Kiddie Tax Brackets
    • Depreciation MACRS Table
  • Tax Information
    • Latest Phone number of IRS
    • Local Taxpayer Advocate Service Office
    • Search CAA & AA
  • Tax Calculator 2022 & 2023
    • Fastest Sales Tax Reverse Calculator
    •  EITC Calculator 2022 & 2023
    • SEP-IRA Calculator
    • Penalty Calculator
    • IRA Contribution Limit Calculator
    • Mileage Reimbursement Calculator
    • Net Investment Calculator
    • Alternative Minimum Tax Calculator for 2017 & 2018
    • Estimated Tax Penalty
    • Section 179 Deduction
    • tax residency
      • Physical Presence Test Calculator
      • US Tax Residency Calculator
      • First Year Choice Calculator
    • Capital Gains Calculator
    • Home Office Deduction Calculator
  • Write to me
  • Q&A
  • State and Local Taxes
    • California Tax Calculator With Tax Rates
    • DC Tax Rates 2022 & Past Years
    • Massachusetts tax calculator
    • Illinois tax calculator with tax rates
    • Indiana Tax Rate Chart
    • NY State Tax Rate 2022
  • Privacy Policy
  • Guest Posting
  • Lottery Tax Rates by State
  • Test of calculator
No Result
View All Result
Internal Revenue Code Simplified
No Result
View All Result
Internal Revenue Code Simplified
No Result
View All Result
Home FAQ on Tax Issues

Curious Case of Taxing Hush Money : What You Need to Know !

by Prashant Thakur
April 5, 2023
in FAQ on Tax Issues
0
hush money

Is hush money taxable? This is a burning question in the mind of many people in the USA because of Mr Trump’s indictment news. So, this article will answer the question “Is hush money taxable in the hand of the recipient?”, and also “Is hush money deductible in the hand of the payer? “.Anyway, the impugned decision of the court to indict Mr Trump is not based on Internal Revenue Code but on a law-related election.l In this post, we will discuss taxation issues related to payments and receipt of hush money under the Internal Revenue Code.

Table of Contents

  • What is Hush Money, Anyway? 
  • Tax Implications for the Payer
  • Is Hush Money Tax Deductible?
  • When are the Hush Money Payments Nondeductible?
  • Is Hush Money Taxable for the Recipient?
  • Withholding Taxes and Form 1099-MISC 
  • Notable Revenue Rulings and Court Cases on Hush Money Taxation
  • Navigating the Gray Areas

What is Hush Money, Anyway? 

Before diving into taxation, let’s clarify what hush money is. Hush money refers to payments made to an individual or entity in exchange for their silence on a matter, typically to conceal misconduct, illicit activities, or embarrassing information. These payments can take various forms, such as cash, gifts, or other valuable assets.

Tax Implications for the Payer

Now that we’ve defined hush money, let’s talk about its tax implications. For the person or business paying the hush money, these payments can be considered deductible or nondeductible expenses, depending on the situation.

Is Hush Money Tax Deductible?

According to IRC Section 162, a payment can be considered deductible if it is an ordinary and necessary expense paid or incurred during the taxable year in carrying on any trade or business. This may include legal settlements paid to protect the reputation of the business. However, the payment must not violate public policy or law.

When are the Hush Money Payments Nondeductible?

Per IRC Section 162(f) and Section 263A, certain hush money payments may not be deductible. For instance, payments made to influence the outcome of an ongoing criminal investigation or to cover up illegal activities are considered nondeductible expenses. Additionally, fines and penalties paid to the government for violating the law are also nondeductible.

Is Hush Money Taxable for the Recipient?

As for the recipient of hush money, the tax implications can be quite different. Generally, hush money received is considered taxable income, as stated in IRC Section 61, and the recipient must report the amount received as “Other Income” on their tax return.

Withholding Taxes and Form 1099-MISC 

In some cases, the payor of the money may be required to withhold taxes and issue a Form 1099-MISC to the recipient. Withholding is necessary if the payment meets the “non-employee compensation” criteria under IRC Section 6041. This includes payments made during the payor’s trade or business to an individual, partnership, or estate for services rendered.

If the payment is subject to withholding, the payor must withhold a portion of the payment as federal income tax, and the recipient must report the income and withhold taxes on their tax return. The payor must also report the payment and withheld taxes to the IRS using Form 1099-MISC.

Notable Revenue Rulings and Court Cases on Hush Money Taxation

There have been some noteworthy Revenue Rulings and court cases that address the taxation of hush money payments:

  1. Revenue Ruling 77-44: In this ruling, the IRS concluded that hush money paid to an employee to prevent them from revealing trade secrets was considered a deductible business expense for the employer.
  2. Revenue Ruling 2003-12: The IRS held that settlement payments made by an employer to a former employee to settle discrimination claims were deductible business expenses.
  3. Horton v. Commissioner, 33 T.C. 5 (1959): In this court case, the Tax Court held that hush money paid to a former employee was deductible as an ordinary and necessary business expense, as it was intended to protect the employer’s business reputation.
  4. Commissioner v. Tellier, 383 U.S. 687 (1966): The Supreme Court ruled that legal fees paid by a taxpayer to defend against criminal charges related to their business activities were deductible expenses, as they were deemed ordinary and necessary. However, this ruling does not extend to payments made to cover up illegal activities or to obstruct justice.

Navigating the Gray Areas

As you can see, the taxation of hush money isn’t always black and white. Both payors and recipients need to consider the specific circumstances surrounding the payment to determine its tax implications accurately. When in doubt, it’s always a good idea to consult a tax professional or legal expert for guidance.

Post Disclaimer

While the information on this site  - Internal Revenue Code Simplified-is about legal issues, it is not legal advice or legal representation. Because of the rapidly changing nature of the law and our reliance upon outside sources, we make no warranty or guarantee of the accuracy or reliability of information contained herein.

Previous Post

Second Home : Unlocking the Hidden Tax Benefits !

Next Post

Alternative Minimum Tax Calculator 2023

Categories

Search

No Result
View All Result

Recent Articles

  • Innocent Spouse Relief: A Lifeline in Troubled Times
  • Get Back Lost Refund Check Easily in 5 Steps!
  • How to File and Pay Small Business Taxes? The Complete Guide
  • How Tax Free Retirement Account Can Help You in Retirement Planning !
  • Lottery Tax Calculator with Guide on Taxation Gambling and Lottery Winnings
No Result
View All Result
  • Tax Rates 2023
    • Pension Plans Limits 2023
    • Estate & Trust
    • 2022 Tax Brackets
      • USA State and Local Taxes
      • EIC Table 2023, 2022
    • Tax Bracket 2021
    • Tax Brackets 2020
    • Tax Bracket 2019
      • Long Term Capital Gains Rate- 2019,2018,2017
      • 2019 & 2018 Standard Deduction
      • Kiddie Tax Brackets
    • Depreciation MACRS Table
  • Tax Information
    • Latest Phone number of IRS
    • Local Taxpayer Advocate Service Office
    • Search CAA & AA
  • Tax Calculator 2022 & 2023
    • Fastest Sales Tax Reverse Calculator
    •  EITC Calculator 2022 & 2023
    • SEP-IRA Calculator
    • Penalty Calculator
    • IRA Contribution Limit Calculator
    • Mileage Reimbursement Calculator
    • Net Investment Calculator
    • Alternative Minimum Tax Calculator for 2017 & 2018
    • Estimated Tax Penalty
    • Section 179 Deduction
    • tax residency
      • Physical Presence Test Calculator
      • US Tax Residency Calculator
      • First Year Choice Calculator
    • Capital Gains Calculator
    • Home Office Deduction Calculator
  • Write to me
  • Q&A
  • State and Local Taxes
    • California Tax Calculator With Tax Rates
    • DC Tax Rates 2022 & Past Years
    • Massachusetts tax calculator
    • Illinois tax calculator with tax rates
    • Indiana Tax Rate Chart
    • NY State Tax Rate 2022
  • Privacy Policy
  • Guest Posting
  • Lottery Tax Rates by State
  • Test of calculator

© 2023 JNews - Premium WordPress news & magazine theme by Jegtheme.

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In