Current through Register Vol. 23-24, December 15, 2023
(1)
Introduction. This rule explains the definition of gross income
used for federal income tax purposes and provides guidance to assessors on how
to calculate and verify gross income. To meet the income requirements for the
senior citizen, disabled person, and disabled veteran exemption , the claimant
must provide supporting documents verifying combined disposable income as
defined in WAC
458-16A-100.
The gross income for federal income tax purposes of the claimant, the
claimant's spouse or domestic partner, and any cotenants represents a part of
the claimant's combined disposable income.
Examples. This rule includes examples that
identify a set of facts and then state a conclusion. These examples should only
be used as a general guide.
(a)
Federal income tax return. In most cases, the claimant presents copies of
federal income tax returns to demonstrate both gross income and adjusted gross
income amount(s) for the claimant, the claimant's spouse or domestic partner,
and any cotenants. The assessor then determines, and may request verification
of, the disposable income for each person based on that person's federal income
tax return and the other information supplied by the claimant.
(b) No federal income tax return. If the
claimant does not present federal income tax returns, the assessor must
determine what constitutes gross income and obtain copies of income documents
to determine , and possibly verify, the claimant, the claimant's spouse or
domestic partner, and any cotenant's gross income.
(2)
Gross income determined.
Internal Revenue Code section 61 defines "gross income," generally, as all
income from whatever source derived. WAC
458-16A-135
lists the documentation used by the assessor to determine the gross income of
the claimant.
(3)
Exclusions
from the federal definition of gross income. A claimant may provide
documentation or information about amounts received during the year that are
excluded from gross income. These amounts should not be taken into account when
determining gross income. The federal definition of gross income, generally,
does not include:
(a) Gifts, inheritance
amounts, or life insurance proceeds;
(b) Up to two hundred fifty thousand dollars
(five hundred thousand dollars for a married couple) gain from the sale of a
principal residence that meets the requirements of Internal Revenue Code
section 121;
(c) Amounts received
for illness or injury from workmen's compensation, a legal settlement, a legal
judgment, a Medicare+Choice MSA, a federal employer under the federal Employees
Compensation Act, accident insurance, or health insurance. If the amount
received is from an employer directly for illness or injury or from
employer-provided accident or health insurance, the amount is excluded only if
it is paid to reimburse medical expenses, for the loss of limb, or for
permanent disfigurement to the employee, the employee's spouse, or the
employee's dependents;
(d)
Contributions or payments made by an employer to accident and health plans, the
employer's qualified transportation plan, a cafeteria plan, a dependent care
assistance program, educational assistance programs, or for certain fringe
benefits for employees described by Internal Revenue Code section 132. If the
claimant earns wages as an employee, they should receive a W-2 form from the
employer reporting those wages. The W-2 form should have excluded the described
contributions or payments provided for the employee's benefits . If there is a
question on whether an employer adjusted the employee's gross income for these
employee benefits, the claimant should contact their employer and have the
employer provide the assessor with an accurate copy of the W-2 form to verify
the correct wages paid to the employee;
(e) Income from discharge of indebtedness
under certain limited circumstances, such as insolvency. These circumstances
are outlined in Internal Revenue Code section 108;
(f) Improvements by a lessee left on the
lessor's property at the termination of a lease;
(g) Recovery of an amount deducted in a prior
tax year that did not reduce federal income taxes paid in that prior year. For
example, a person that itemized deductions may get a refund of property taxes
or a stolen uninsured item will be returned. This refund or recovery is
included in income unless the deduction did not result in a reduction of tax.
It may not result in a reduction of tax because the person had to pay
alternative minimum tax or taking away that deduction drops that person below
the standard deduction amount. When the deduction did not reduce taxes, the
recovery amount that did not reduce taxes is excluded. The assessor may request
the claimant excluding such a recovery to present prior returns and worksheets
such as the worksheets provided in Publication 525, Taxable and
Nontaxable Income, to demonstrate how the exclusion was
calculated;
(h) Qualified
scholarships and fellowship grants provided for certain educational expenses
(e.g., tuition and books). Internal Revenue Code section 117 provides a
complete description of qualified scholarship and fellowship grant amounts
excluded from gross income;
(i)
Meals or lodging furnished to an employee for the convenience of the
employer;
(j) Excluded military pay
and benefits as defined in WAC
458-16A-100;
(k) Amounts received under insurance
contracts for certain living expenses. Generally, when an individual's
principal residence is damaged or destroyed by fire, storm, or other casualty,
or the individual is denied access to their principal residence by governmental
authorities because of the occurrence or threat of a casualty, gross income
does not include amounts received by the individual under the insurance
contract which is paid to compensate or reimburse the individual for living
expenses incurred for themselves and members of their household resulting from
the loss of use or occupancy of the residence;
(l) Certain cost-sharing payments made for
conservation purposes on land owned by the claimant. Payments received from
federal or state funds primarily to conserve soil, protect or restore the
environment, improve forests, or provide a habitat for wildlife are excluded
from gross income. In addition, the claimant may exclude energy conservation
subsidies provided by public utilities from gross income. If the claimant
indicates that they have received payments from the government or had
improvements made to their residence or land by the government for conservation
purposes, the assessor may ask for verification of the amount excluded, if any,
from gross income and the information received by the claimant supporting this
exclusion. See Internal Revenue Code sections 126 and 136;
(m) Child support payments;
(n) Qualified foster care payments made from
the government or a qualified nonprofit to a foster parent or guardian. See
Internal Revenue Code section 131;
(o) Income from United States savings bonds
used to pay higher education tuition and fees. See Internal Revenue Code
section 135;
(p) Distributions from
a qualified state tuition program or a Coverdell Education Savings Account used
to pay for higher education expenses and distributions from a Cov-erdell
Education Savings Account used to pay for elementary or secondary education
expenses. See Internal Revenue Code sections 529 and 530.
Statutory Authority:
RCW
84.36.383,
84.36.389, and
84.36.865. 08-16-078, §
458-16A-110, filed 7/31/08, effective 8/31/08; 03-09-002, § 458-16A-110,
filed 4/2/03, effective 5/3/03.