Personal Income Tax (PIT)

What Is the Personal Income Tax (PIT)?

Personal Income Tax (PIT), also known as individual income tax, is a tax on employee earnings. 

According to the IRS, earned income is money earned as an employee or as the owner of a business or farm. The list of taxable earned income includes the following:

• Wages, salaries, tips, and other taxable employee compensation

• Union strike benefits

• Disability retirement benefits received prior to minimum retirement age

• Net earnings from self-employment as a business owner, farm owner, minister, or statutory employee

Understanding how benefits interact with the personal income tax can help employers choose the best options to help employees balance their personal finances, retirement savings, and medical expenses. 

Which Benefits Reduce Personal Income Tax?

Certain benefits deductions apply pre-tax, meaning they reduce an employee’s total taxable income. With less income subject to tax, increasing pre-tax income can lessen the amount employees pay in personal income tax. 

Currently, employees can take advantage of pre-tax deductions on medical insurance premiums, contributions to retirement accounts, child care expenses, and certain other business-related expenses. See our glossary entry on pre-tax deductions for a full list of pre-tax deductions to personal income tax. 

Which Personal Income Tax Forms Should Employers Provide Employees?

The two most common tax forms employers send to their employees are Form W-2 (Tax and Wage Statement) and Form 1095-C (Employer-Provided Health Insurance Offer and Coverage). Self-employed contractors generally receive Form 1099-MISC or Form 1099-NEC.