Benefits Received Rule

DEFINITION of 'Benefits Received Rule'

1. A theory of income tax fairness that says people should pay taxes based on the benefits they receive from the government.

2. A tax provision that says a donor who receives a tangible benefit from making a charitable contribution must subtract the value of that benefit from the amount claimed as an income tax deduction.

BREAKING DOWN 'Benefits Received Rule'

1. The appeal of the benefits received rule is its apparent fairness - those who benefit from a service should be the ones who pay for it. This is not how the tax system works in the United States. The U.S. tax system is a "progressive" or "ability-to-pay" system, meaning that those who make more money tend to pay taxes at a higher rate and those who make less money tend to pay taxes at a lower rate or even receive taxpayer-funded benefits while paying no taxes at all. Another alternative is a flat tax system in which everyone pays the same tax irrespective of income.


2. Under the benefits received rule, if Jane bought a $500 ticket to a nonprofit fundraising gala and received a dinner worth $100, she could only claim $400 as a tax deduction.

RELATED TERMS
  1. Tax Benefit

    A tax benefit is an allowable deduction on a tax return intended ...
  2. Net Of Tax

    An accounting figure that has been adjusted for the effects of ...
  3. Tax Break

    A tax break is a savings on a taxpayer's liability. A tax break ...
  4. Tax Rate

    The percentage at which an individual or corporation is taxed. ...
  5. IRS Publication 514

    A document published by the Internal Revenue Service that provides ...
  6. Tax Deductible Interest

    A borrowing expense that a taxpayer can claim on a federal or ...
Related Articles
  1. Personal Finance

    Could The Fair Tax Movement Ever Replace The IRS?

    Although many taxpayers would love to see the IRS abolished, only a handful of thinkers have come up with any sort of viable replacement plan. The Fair Tax is one such idea that has continued ...
  2. Personal Finance

    3 Federal Income Tax Facts You Didn't Know

    Learn about three federal income tax facts that most Americans may not know from one of the most trusted financial resources on the Web.
  3. Personal Finance

    Do Tax Cuts Stimulate The Economy?

    Learn the logic behind the belief that reducing government income benefits everyone.
  4. Personal Finance

    The Most Controversial Tax Deductions

    When it comes to taxes, it's hard to make people happy but these deductions raised more than the average amount of controversy.
  5. Personal Finance

    How Much Tax Do You Really Pay?

    When you add direct and indirect taxes together, your real tax rate is much more than you expected.
  6. Personal Finance

    Do Canadians Really Pay More Taxes Than Americans?

    We look at the difference in tax rates and services offered on both sides of the border.
  7. Personal Finance

    Understanding Taxes

    Taxes are mandatory fees that individuals and corporations must pay to their governments.
  8. Personal Finance

    5 Most Taxing Taxes for Americans

    There’s not much that unites Americans like their hatred of taxes. Here's a list of taxes we dislike the most.
  9. Personal Finance

    What's a Marginal Tax Rate?

    The marginal tax rate is based on a progressive tax system, where tax rates for an individual will increase as income rises. This method of taxation aims to fairly tax individuals based upon ...
  10. Investing

    Calculating Net of Tax

    Net of tax is a figure that has been adjusted for taxes.
RELATED FAQS
  1. Is progressive tax the same thing as marginal tax rate?

    Learn how a marginal tax rate is a form of a progressive tax rate. Learn the pros and cons of such a tax policy and who may ... Read Answer >>
  2. What is the difference between a state income tax and a federal income tax?

    Learn the difference between state income tax and federal income tax based on tax rates, deductions, tax credits and taxable ... Read Answer >>
  3. How does the marginal tax rate system work?

    The marginal tax rate is the rate of tax that income earners incur on each additional dollar of income. As the marginal tax ... Read Answer >>
  4. How can I lower my effective tax rate without lowering my income?

    Discover how to reduce your effective tax rate without losing income by maximizing adjustments and deductions, earning tax-free ... Read Answer >>
  5. What are the differences between regressive, proportional and progressive taxes?

    Understand the differences between the most common tax systems including regressive taxes, proportional taxes and progressive ... Read Answer >>
  6. What is the difference between a regressive tax versus a progressive tax?

    Determine how progressive and regressive taxes impact your personal finances, and learn more about how you pay both types ... Read Answer >>
Trading Center