Types of personal income
* ''Nominal personal income (NPI) ''- refers to the amount of income received from all types of activities. Taxes and mandatory costs are not included. It is mainly about money, that makes a personal budget and that we get on hand. * ''Disposable personal income (DPI) ''– define the amount of money that you actually use. In other words, it is a nominal income plus all mandatory costs such as rental housing, fees of utilities, etc. * ''Real personal income (RPI) ''– personal income while inflation is taken into account. RPI is useful for calculating fixed payments for an extended period of time. RPI = DPI-Classification of personal income
At the present stage, personal income has a complex structure. They can be classified.The changes in the level of consumer prices
- Nominal income identify as the amount of capital that a certain person received in a specific period of time. This indicator shows the real level of financial income, regardless of the level of taxes. - Disposable income refers to the money that belongs to this type of profit can be used for personal tasks and saved as your savings. At the same time, disposable income is usually lower than nominal. This is explained by the need to deduct mandatory payments and taxes from the total amount. DPI = PI (personal income) – personal tax (income tax) – non tax payment (fine) - Real income shows how many people will be able to purchase goods with the available funds over a certain period of time.The form of the units
- Monetary income includes salaries, pensions, business profits, wages at enterprises, and unemployment benefits. This also includes dividends on securities, profit from real estate, interest on deposits, and profit from the sale of agricultural products, income from the sale of currency, insurance payments, and other forms of incomeBernanke, Ben S. "Alternative explanations of the money-income correlation." (1986). - Natural income such profits include products that are made in the conditions of a subsidiary farm, payments from social funds, services provided by family members, and so on. 3. The intervention of public structures: - Primary income is generated by a powerful market mechanism. - Secondary income is inevitably associated with changes in the country's policy. 54,49.00thousands dollarsThe relationship between socio-economic and the personal income
In recent decades, there has been a steadily increasing concern of the economy of the personal and household income, which is considered as a socio-economic unit that bonds people with relationships that arise when organizing their joint life. At the same time, it is an equal economic entity that regulates the consumption of goods created in the economy and provides the social economy with the available resources.Cherdyntsev, Gennady Mitrofanovich. "Personal Finance, the structure of income and expenditure of the population at the regional level." Bulletin of Omsk University. Economics Series 4 (2008) The socio-economic core of personal income has become particularly important in recent years, which coincided with the development of consumer credit. According to E. A. Maznaya, the household should be considered as a system of economic relations between the individual and society (as well as between people who combine their budget and jointly make decisions), created by a person to meet their needs and reproduce their living conditionsHouseholds and personal income aspects
Personal income (household and family finances) is an economic relationship for the formation and use of monetary funds in order to ensure the material and social conditions of life of members of society and their reproduction. Now there is no doubt that in the conditions of developed market relations, personal Finance is allocated as an independent part of the financial system. A comprehensive study of this subject is devoted to numerous publications that address such issues as managing and controlling personal expenditures through the use of personal budgets and accounts; skillful distribution of consumption expenditures; planning taxes, insurance payments, medical care and debt repayment; income management and planning for property accumulation and retirement; a reasonable approach to purchases and borrowing; spending on raising children, education, insurance, etc.The difference in personal income and National income
Personal income is considered as a part of national income received by households which is the income existed by production aspects. However, National income is caused by production aspects.Personal income is the money received by factors of production, whereas national income is the income generated by them. The government sector's income is included in national income but not in personal income. Companies' undistributed profits and corporate profit taxes are components of national income, but they must be removed from personal income calculations. Windfall games, which are not included in national income, are included in personal income. Personal income, but not national income, includes interest on the national debt.Personal income calculation
PI = Undistributed profits UP (received by earnings) – Corporate tax CT (received by government) – Net interest households payment NIH (payment made from households) + Transfer payment from households TPH (received by households)= National income calculation
= The Importance of national income as the main source of income growth and living standards of the population associated with increasing the efficiency of social production * National income in the system of basic macroeconomic indicators: the policy of income and wages is a system based on legislation and regulations for the distribution of created national income for personal consumption of the population. As the main source of income growth and living standards of the population, national income, in turn, is a part of the gross national product. * Gross national product: the total market value of goods and services produced in a country for a year) is usually considered from two points of view: expenditure and income. As a set of expenditures the gross national product can be represented as the sum of four components :Romanenko, I. V. " The policy of income and wages." (2000). GNP = Ig + C + G + Xn (100) = (45) + (40) + (9) + (6), where GNP (gross national product) - gross national product, GNP (100) Ig (gross investment) - gross investment, or business investment expenses (45) C (personal consumption expenditures) – personal consumption expenditures, or consumer expenditures households (40) G (government purchases) – government purchases of goods and services, or government expenditures (9) Xn (net exports) - net exports (exports minus imports) (6)Sources of personal income
*Importance of personal income
For an average person, personal income reflects its well-being and the conditions in which it lives. The higher the personal income, the higher the welfare and the better the living conditions. Therefore, people tend to increase their personal income in various ways. Rising money does contribute to increased happiness, but it requires people to be hopeful, not have unrealistic expectations, and the typical person to be able to afford more goods. Increases in household income were linked to greater happy moods and improved life assessments.Personal income tax
Personal income tax is a tax imposed on income generated by individuals. The government adjusts the tax according to the jurisdiction of a country. For the government, income tax is a source of the government's revenue, that they spend on public goods and services. It is the most progressive tax; however, there are significant cross-country variations, and social security contributions, consumption taxes, and real estate taxes tend to be regressive in most countries. Also, the tax expenditures pertaining to personal income tax, that are tend to benefit the well-off, and the main exception being in-work tax credits. Besides, the personal income tax is progressive and gross replacement rates are generally below 100%. According to the 2008 OECD data, most of the households surveys are focused on the personal income tax, followed by social security, contributions which are paid by the employees, and sometimes property taxes. However, despite the cuts in the marginal rates, labour taxes have often become a more progressive tax, and personal income tax schedules have become more flatter over the past decade. Furthermore, despite the cuts in top rates, tax schedule progressively which has increased in a majority of OECD countries since 2000, and largely driven by changes at the lower end of the income distribution. And, to make it more attractive for the spouse and low-paid workers in many countries such as Belgium, Canada, Finland, France, the Netherlands, the Slovak Republic, Sweden, the United Kingdom, and the United States has strengthen in their work benefits targeted at low-income groups, therefore, they incidentally increasing the progressively of the personal-income tax. And, on the tax side, the personal income tax often plays a marginal role in the total tax, and the progressively of labour tax schedule is relatively limited. In contrast, the personal-income tax and social security contributions move in the same direction, especially when the share of taxes of labour decreases, and in some cases the reduction of the share of taxes on labour has achieved through a shift among the three different components. For instance, in the Netherlands had increased the share of social security paid by employers, and France the share of personal-income tax, whereas in Latvia has decreased the share of taxes on labour by compensating an increase in personal income tax and social security paid by employees through significant cuts in employers social security. Personal income tax revenues are dependent on wages and employment (WtLt), and the rationale of social related expenditure is affecting the personal income taxation, the tax expenditure has long been used as a tool for promoting a social and economic objectives. And, in the US the social tax expenditures are affecting personal income taxation and represent the main part of total tax expenditure in relation to GDP. There are four preferential tax treatment are affecting the personal-income tax, related to housing, pension, education and health expenditure. According to the OECD 2019, there is a rise in tax wedge rates driven by the higher income, and it was the major factor in 20 of the countries of OECD showing an overall increase. And, the largest rise in personal income taxes as a percentage of labour costs was in France (1.36 percentage points), largely due to an increase of 1.7% points in surtax rate; however, the increase in personal-income tax was mostly offset by reduced social security contributions.Personal benefits of paying income tax
* Visa applications: If you want to visit the United States, the United Kingdom, or Canada, you alien must present an Income Tax Return (ITR) for the previous two years in order to get your Visa granted. This is due to the fact that the ITR assists other nations in ensuring that you are not fleeing India to avoid paying taxes. * Loan approval: Most large-ticket loans, such as mortgages, require you to produce copies of your tax returns. Because your income is one of the most essential factors in loan acceptance, lenders use your ITR to confirm it. * Income proof :The ITR receipt also serves as proof of income for self-employed professionals such as consultants, business partners, or freelancers. ITR is particularly useful for such experts who are not on the payroll of any one corporation in their business and financial operations.Public benefits of paying income tax
* Public infrastructure: In most regions of the country, work on transportation infrastructure, government institutions, public spaces, smart cities, and other projects is well underway. The government is able to fund infrastructure improvements with the help of the taxes that taxpayers pay. • Social assistance programs: The government runs and often develops new public welfare initiatives to help people from all sections of the country, including health, education, housing, unemployment, and food programs. One of the key sources of funding for such programmes is income tax. • Defense and scientific research: The latest Chandrayaan 2 mission of the Indian Space Research Organization (ISRO) has made every Indian proud. However, such space missions and scientific breakthroughs necessitate ongoing support. Similarly, tax dollars assist the government in allocating appropriate funding to maintain and strengthen our country's defense capabilities.Taxable vs. Non-taxable Income
Almost all types of income are considered taxable by the IRS, however a tiny number of revenue streams are not. 4 If you are a member of a religious order who has taken a poverty vow, work for an organization managed by that order, and turn up your earnings to the order, your income is non-taxable. Similarly, the value of an employee achievement award is not taxed as long as certain conditions are met. If a loved one passes away and you receive a life insurance payment, that is also non-taxable income. Taxable and non-taxable income are defined differently by different taxing authorities. While the IRS considers lottery winnings taxable income in the United States, the Canada Revenue Agency considers most lottery prizes and other one-time windfalls to be non-taxable.See also
*References
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