What is the difference between income tax and welfare? That sounds like the start of a Netflix commercial, but it actually is a sensible question.
Back in April of 2010 we published an article entitled When Income Tax Is Income, Not Tax. In that post we discussed how some filers could get a tax “refund” that is more than they paid in. Here is a real life example.
An acquaintance of mine has 3 incomes. He has a full pay disability retirement income from a municipal fire department. No income tax is withheld on this pension. I don’t know the nature of his disability; it’s nothing apparent. He has a second income from a full time job at a specialty store. Here he works for the owner as an agent, not as an employee, so no income tax is withheld from these earnings either. The third income comes from an online business. His wife was a full time student in 2010.
My friend duly reported the pension and store income on his tax return. To his utter astonishment, this year he is getting a “refund” of $2,300. Although no contributions whatsoever were made by him during the year, he will be “getting back” 2,300 dollars based on his 1040 filing. His annual income is about 75,000. He does not need welfare, nor is he seeking it.
What is the difference between income tax and welfare? Sometimes there isn’t any difference at all.