Question

Mr. White’s salary at Faith University in 2016 is $100,000 per year (his salary has gone up $1,000 a year since 2006). On his 2016 tax return, however, Mr. White reported only $76,000 of income from Faith University and attached a written statement that said, “My house rent in Lovely, Massachusetts costs $2,000 per month.” Mr. White also attached a copy of his employment agreement with Faith University to his tax return. The employment agreement states that his annual salary is $100,000, inclusive of a $15,000 housing allowance.”

what are the facts and specific issue?

Answer 1

Mr. White has misinterpreted the provisions of income tax law. As per the laws governing the taxation of income, the maximum deduction for Housing Allowance is limited to actual or the HA as mentioned in the salary structure, whichever is lower. In the given case, Housing Allowance should be capped at $15,000. The actual housing expenses of $24,000, with $2000 per month, are not admissible. Therefore, Mr. White presenting his income as $76,000, which is $100,000 minus actual housing expenses of $24,000, is wrong. His actual income should be stated at $100,000 and accordingly the relevant provisions should be applied.