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What is Personal Income Tax (PIT)? | HRMantra
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What is Personal Income Tax (PIT)?
Personal Income Tax (PIT), also known as Personal Income Tax, is a tax levied on employee's earnings.
According to the IRS, earned income is money that one earns as an employee or as the owner of a business or farm. The list of taxable earned income includes the following:
- Wages, salaries, tips and other taxable employee compensation
- Benefits of a Union Strike
- Disability retirement benefits received before the minimum retirement age
- Net income from self-employment as a business owner, farm owner, ministerial or statutory employee
Understanding how benefits interact with personal income taxes can help employers make the best choices to help employees balance their personal finances, retirement savings and medical expenses.
What benefits reduce personal income tax?
Some benefit deductions apply pre-tax, meaning they reduce the employee's total taxable income. With less income subject to tax, an increase in pre-tax income can reduce the amount employees pay in personal income taxes.
Currently, employees can take advantage of pre-tax deductions on medical insurance premiums, contributions to retirement accounts, child care expenses and certain other business-related expenses. See our glossary entry on pre-tax deductions for a complete list of pre-tax deductions in personal income tax.
What personal income tax forms must employers provide to employees?
The two most common tax forms employers send to their employees are Form W-2 (tax and wage statement) and Form 1095-C (employer-provided health insurance offer and coverage). Self-employed contractors typically get Form 1099-MISC or Form 1099-NEC.
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