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.

Investopedia explains '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.


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