Personal Income Tax (PIT)

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What is Personal Income Tax (PIT)? 

Personal income tax (PIT) is also commonly known as “individual income tax”.  This refers to the income tax that is imposed on a person’s earned income or earnings. The Internal Revenue Service (IRS) defines earned income as income and wages that a person receives as an employee and working for somebody else or income earned from their personal business or farm. 

There are many types of earned income including:

It is important to note that earned income does not include the following:

What are the forms for Personal Income Tax (PIT) that employers should provide? 

Generally, employers provide Form W-2 (Tax and Wage Statement) and Form 1095-C (Employer-Provided Health Insurance Offer and Coverage). Also, individuals who are self-employed contractors receive Form 1099-MISC or Form 1099-NEC. 

What can reduce Personal Income Tax (PIT)?

There are certain pre-tax deductions for benefits that can reduce an individual’s personal income tax. Because these are taken “pre-tax” or before taxes are withheld, these deductions can decrease an individual’s taxable wages and thereby reduce personal income tax. Examples of such pre-tax deductions are medical insurance premiums, retirement plan contributions, disability, child care expenses, and other expenses.

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