Income Tax Pdf Notes
Mallory Chowansky
A structured note is a complicated investment. It is a derivative that brings together the features of different investments into one vehicle. As such, they track the performance of an underlying asset. Put simply, it is a debt obligation with a derivative embedded into it. There is some degree of flexibility that provides limited losses with limited gains. But they provide investors with low levels of liquidity and can be hard to trade on the secondary market.
Structured notes are considered complicated investments because of the intricacies involved. Since they involved both a debt obligation and a derivative, it's important for investors to understand how these two elements work. Having said that, investment banks typically create structured notes for more sophisticated investors like hedge funds and institutional investors.
That depends on the type of structured note. Certain notes offer some sort of principal protection. If you invest in a note that doesn't have this protection, you could lose some or all of your principal investment balance.
Most interest that you receive or that is credited to an account that you can withdraw from without penalty is taxable income in the year it becomes available to you. However, some interest you receive may be tax-exempt. You should receive Copy B of Form 1099-INT or Form 1099-OID reporting payments of interest and/or tax-exempt interest of $10 or more. You may receive these forms as part of a composite statement from a broker. You must report all taxable and tax-exempt interest on your federal income tax return, even if you don't receive a Form 1099-INT or Form 1099-OID. You must give the payer of interest income your correct taxpayer identification number; otherwise, you may be subject to a penalty and backup withholding. Refer to Topic no. 307 for information on backup withholding. See the paragraph below with respect to original issue discount (OID), which is treated as interest for federal tax purposes.
If a taxable bond, note or other debt instrument was originally issued at a discount, part of the original issue discount may have to be included in income each year as interest, even if no payment is received during the year. Refer to Publication 550 or Publication 1212, Guide to Original Issue Discount (OID) Instruments for more information on original issue discount. You should receive a Form 1099-OID, Original Issue Discount or a similar statement from each payer of taxable original issue discount of $10 or more, showing the amount you should report in income. For a tax-exempt bond acquired on or after January 1, 2017, you should receive a Form 1099-OID, or a similar statement, of tax-exempt OID that is reportable as tax-exempt interest.
There are times when you may receive a Form 1099 for interest in your name that actually belongs to someone else. In this case, the IRS considers you a nominee recipient. If you received a Form 1099-INT or Form 1099-OID that includes an amount you received as a nominee for the real owner:
If you receive taxable interest, you may have to pay estimated tax on the additional income. For more information, see Estimated Taxes and Am I required to make estimated tax payments? For more information on interest income, refer to Publication 550.
Housing costs are a severe financial burden to many low-income families. The typical renter in the bottom quintile of the income distribution spends more than half of monthly income on rent and has less than $500 dollars left after paying rent. Moreover, the percent of income that this group spends on rent has risen about 10 percentage points since 2000. How much income it takes to cover rent or mortgage payments can affect the economic well-being and financial stability of families.2 When households devote a large share of income to rent, an unexpected shortfall in income may leave them unable to pay rent and could lead to eviction. Moreover, households that have little income left after paying rent may not be able to afford other necessities, such as food, clothes, health care, and transportation. The large share of income required for housing also limits the ability to save and accumulate wealth.
To assess the rent burden on families, we analyze housing expenditures of renters using the American Community Survey (ACS) Public Use Microdata Sample (PUMS). Consistent with the U.S. Department of Housing and Urban Development (HUD), we define "rent burdened" as spending more than 30 percent of income on housing and "severely rent burdened" as more than 50 percent. We also compare the amount of income left after housing costs (or "residual income") to the Supplemental Poverty Measure.3 Recognizing that most renters in the upper 80 percent of the income distribution are not rent burdened, we primarily focus on those renters in the bottom quintile. The typical low-income renter faces severe rent burden, and this burden is largely similar across geographies. Additionally, low-income renters with children under age 18 face particularly high rent burdens and low "residual incomes," while older renters have somewhat lower rent burdens.
The median renter in the lowest income quintile pays 56 percent of monthly income on rent, exceeding HUD's standard for "severe rent burden" (Figure 1). Severe rent burdens are generally not present among renters with income above the lowest quintile. In the second quintile of income, the median rent-to-income ratio is 28 percent, slightly below HUD's "rent burden" standard. The median renter household in each of the higher income quintiles spends less than 20 percent of their income on rent. Even though the typical higher-income renter is not rent burdened, some higher-income renters do pay large shares of income on housing.
Notes: Calculations using 2015 ACS PUMS data. Median values by income quintile for renter households in 2015. Income quintiles are defined by local income. All rent and income results exclude homeowners and those who do not pay cash rent. Rent is based on the contract rent for the housing unit. Income is the pre-tax, post-cash-transfer income of the household.
To determine the sufficiency of income left after paying rent, we use the non-housing portion of the Supplemental Poverty Measure (SPM) thresholds.4 In 2015, the SPM estimated that a family of four on the border of poverty would have needed just under $1400 per month to cover non-housing expenses. The median monthly income after rent for the lowest-income renters is only one third of this amount. The median renter in the second income quintile has income left after rent that is 140 percent of the non-housing poverty threshold.
Lower rent-to-income ratios and higher "residual incomes" among higher income households imply that rental payments do not rise proportionally with income. The lowest income renters pay about half the median rent of the highest income renters (but earn only 10 percent of their income).
Among low-income renters, nearly three-quarters have a residual income that is under the supplemental poverty threshold and 48 percent have a residual income that is less than half of this threshold.5 Fewer than 10 percent of renters in the second quintile have a residual income that falls short of the Supplemental Poverty Measure's threshold. Less than one percent of renters above the 2nd quintile have this income shortfall.
Although renters in the bottom quintile appear particularly rent burdened, tax credits, rental assistance, and other in-kind benefits mitigate some of the burden. This assistance is typically not captured in our data. For example, in 2015 a low-income couple with two children whose wage income is at the median of the bottom quintile would qualify for an earned income tax credit of nearly $5,000 annually and may also be eligible for Supplemental Nutrition Assistance Program (SNAP) benefits of up to $4,000 per year. These benefits are available to a lesser degree to households in the 2nd income quintile and are phased out for most households in the 3rd quintile or above.
Changes in rent burdens over time
The share of income spent on rent has increased substantially for low-income households since 2000. In 2015 the median renter in the bottom quintile of the income distribution spent 11 percentage points more of their income on rent than in 2000 (Figure 2). This increase in rent burdens over the past 15 years occurred through each business cycle period including both the period prior to the financial crisis (2000-2006), the economic downturn (2006-2009) and the subsequent recovery (2009-2015). Although rent-to-income ratios are greatest among low-income households, the share of income spent on rent also rose among higher income renters (not shown).
Figure 3 demonstrates the trend in residual income (after covering rental expenses) for renters in the bottom income quintile over this period. Consistent with the rising rent burden over time in Figure 2, inflation-adjusted residual incomes have also fallen among low-income renters. Over this period, rents rose for the low-income population while their median incomes fell by just over $100. Both trends contribute to greater levels of economic hardship, and jointly result in the decline in residual incomes for low-income renters. Of the overall decline in residual income since 2000, around two-thirds came from declines in income among renters and one third resulted from rising rents.
Notes: See Figure 1. Median values for the lowest income quintile, defined by local income. All values are inflation-adjusted to 2015 dollars using the CPI-U-RS. Difference between rent and income is "residual income".
The challenge of rent burdens extends to micropolitan and rural areas as well as larger cities. Rent-to-income ratios for low-income renters are highest within metropolitan areas and lowest in rural areas, but all are above HUD's rent burden threshold (Table 2).6 Similarly, when considering income left after housing expenses, the lowest quintile of renters in all geographic areas similarly fall well below the residual income expected to remain out of poverty.
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