what does assignment of income mean

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Recognizing when the IRS can reallocate income

• C Corporation Income Taxation
• IRS Practice & Procedure

Transactions between related parties come under close scrutiny by the IRS because they are not always conducted at arm's length. If the amounts involved in the transaction do not represent fair market values, the IRS can change the characteristics of the transaction to reflect its actual nature.

The IRS may attempt to reallocate income between a closely held corporation and its shareholders based on several sets of rules, including the following:

• Assignment-of-income rules that have been developed through the courts;
• The allocation-of-income theory of Sec. 482; and
• The rules for allocation of income between a personal service corporation and its employee-owners of Sec. 269A.

Income reallocation under the assignment - of - income doctrine is dependent on determining who earns or controls the income. Justice Oliver Wendell Holmes made the classic statement of the assignment - of - income doctrine when he stated that the Supreme Court would not recognize for income tax purposes an "arrangement by which the fruits are attributed to a different tree from that on which they grew" ( Lucas v. Earl , 281 U.S. 111, 115 (1930)).

Reallocation under Sec. 482 is used to prevent tax evasion or to more clearly reflect income when two or more entities are controlled by the same interests. Note the use of the word "or" in the preceding sentence. The Code empowers the IRS to allocate income even if tax evasion is not present if the allocation will more clearly reflect the income of the controlled interests. The intent of these provisions is to place the controlled entity in the same position as if it were not controlled so that the income of the controlled entity is clearly reflected (Regs. Sec. 1. 482 - 1 (a)) .

Example 1. Performing services for another group member:   Corporations P and S are members of the same controlled group. S asks P to have its financial staff perform an analysis to determine S' s borrowing needs. P does not charge S for this service. Under Sec. 482, the IRS could adjust each corporation's taxable income to reflect an arm's - length charge by P for the services it provided to S .

Under Sec. 269A(a), the IRS has the authority to allocate income, deductions, credits, exclusions, and other items between a personal service corporation (PSC) and its employee - owners if:

• The PSC performs substantially all of its services for or on behalf of another corporation, partnership, or other entity; and
• The PSC was formed or used for the principal purpose of avoiding or evading federal income tax by reducing the income or securing the benefit of any expense, deduction, credit, exclusion, or other item for any employee-owner that would not otherwise be available.

A PSC will not be considered to have been formed or availed of for the principal purpose of avoiding or evading federal income taxes if a safe harbor is met. The safe harbor applies if the employee - owner's federal income tax liability is not reduced by more than the lesser of (1) $2,500 or (2) 10% of the federal income tax liability of the employee - owner that would have resulted if the employee - owner personally performed the services (Prop. Regs. Sec. 1. 269A - 1 (c)).

For purposes of this rule, a PSC is a corporation, the principal activity of which is the performance of personal services when those services are substantially performed by employee - owners (Sec. 269A(b)(1)). An employee - owner is any employee who owns on any day during the tax year more than 10% of the PSC's outstanding stock. As with many related - party provisions, the Sec. 318 stock attribution rules (with modifications) apply in determining stock ownership (Sec. 269A(b)(2)).

Example 2. Reallocation of income: H forms M Corp., which is a PSC. A few months later, he transfers shares of stock of an unrelated corporation to M . The following year, M receives dividends from the unrelated corporation and claims the Sec. 243(a) 50% dividend exclusion. The IRS may reallocate the dividend income from M to H if the principal purpose of the transfer of the unrelated stock to M was to use the 50% dividend exclusion under Sec. 243. However, the amounts to reallocate to H must exceed the safe - harbor amounts.

These rules usually apply when an individual performs personal services for an employer that does not offer tax - advantaged employee benefits (such as a qualified retirement plan and other employee fringe benefits). In those situations, the individual may set up a 100%- owned C corporation that contracts with the employer. The employer then pays the corporation. The individual functions as the employee of the corporation, and the corporation sets up tax - advantaged fringe benefit programs. The individual generally is able to "zero out" the income of the corporation with payments for salary and fringe benefits.

Despite the significant authority that Sec. 269A grants to the IRS, there is little evidence of the IRS or the courts using this statute. In a 1987 private letter ruling, the IRS held that a one - owner , one - employee medical corporation did not violate the statute, even though it retained only nominal amounts of taxable income, and the corporate structure allowed the individual to achieve a significant pension plan deduction. These facts were not sufficient to establish a principal purpose of tax avoidance (IRS Letter Ruling 8737001). In Sargent , 929 F.2d 1252 (8th Cir. 1991), the Eighth Circuit indicated a lack of interest in applying Sec. 269A because, in that case, the court felt the PSC had been set up for other legitimate reasons.    

This case study has been adapted from PPC's Tax Planning Guide — Closely Held Corporations , 31st Edition (March 2018), by Albert L. Grasso, R. Barry Johnson, and Lewis A. Siegel. Published by Thomson Reuters/Tax & Accounting, Carrollton, Texas, 2018 (800-431-9025; tax.thomsonreuters.com ).

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Assignment of Income Lawyers

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  What Happens if you Assign your Income?

There are some instances when a person may choose to assign a portion of their income to another individual. You may be able to do this by asking your employer to send your paycheck directly to a third party.

It should be noted, however, that if you choose to assign your income to a third party, then this does not mean that you will be able to avoid paying taxes on that income. In other words, you will still be responsible for paying taxes on that income regardless of whether you decide to assign your income to a third party or not. This guideline is known as the “assignment of income doctrine.”

The primary purpose of the “assignment of income doctrine” is to ensure that a person does not simply assign their income to a third party to avoid having to pay taxes. If they do, then they can be charged and convicted of committing tax evasion .

One other important thing to bear in mind about income assignments is that they are often confused with the concept of wage garnishments. However, income or wage assignments are different from wage garnishments. In a situation that involves wage garnishment, a person’s paycheck is involuntarily withheld from them to pay off a debt like outstanding child support payments and is typically ordered by a court.

In contrast, an income or wage assignment is when a person voluntarily agrees to assign their income to someone else through a contract or a similar type of agreement.

How is Assigned Income Taxed?

Are there any exceptions, should i consult with an attorney.

As previously discussed, a taxpayer will still be required to pay taxes on any income that is assigned to a third party. The person who earns the income is the one who will be responsible for paying taxes on the income, not the person to whom it is assigned. The same rule applies to income that a person receives from property or assets.

For example, if a person earns money through a source of what is considered to be a passive stream of income, such as from stock dividends, the person who owns these assets will be the one responsible for paying taxes on the income they receive from it. The reason for this is because income is generally taxed to the person who owns any income-generating property under the law.

If a person chooses to give away their income-generating property and/or assets as a gift to a family member, then they will no longer be taxed on any income that is earned from those property or assets. This rule will be triggered the moment that the owner has given up their complete control and rights over the property in question.

In order to demonstrate how this might work, consider the following example:

• Instead, the person to whom the apartment building was transferred will now be liable for paying taxes on any income they receive from tenants paying rent to live in the building since they are the new owner.

There is one exception to the rule provided by the assignment of income doctrine and that is when income is assigned in a scenario that involves a principal-agent relationship . For example, if an agent receives income from a third-party that is intended to be paid to the principal, then this income is usually not taxable to the agent. Instead, it will be taxable to the principal in this relationship.

Briefly, an agent is a person who acts on behalf of another (i.e., the principal) in certain situations or in regard to specific transactions. On the other hand, a principal is someone who authorizes another person (i.e., the agent) to act on their behalf and represent their interests under particular circumstances.

For example, imagine a sales representative that is employed by a large corporation. When the sales representative sells the corporation’s product or service to a customer, they will receive money from the customer in exchange for that service or product. Although the sales representative is the one being paid in the transaction, the money actually belongs to the corporation. Thus, it is the corporation who would be liable for paying taxes on the income.

In other words, despite the fact that this income may appear to have been earned by the corporation’s agent (i.e., the sales representation in this scenario), the corporation (i.e., the principal) will still be taxed on the income since the sales representative is acting on behalf of the corporation to generate income for them.

One other exception that may apply here is known as a “kiddie tax.” A kiddie tax is unearned or investment-related income that belongs to a child, but must be paid by the earning child’s parent and at the tax rate assigned to adults (as opposed to children). This is also to help prevent parents from abusing the tax system by using their child’s lower tax rate to shift over assets or earned income and take advantage of their child’s lower tax bracket rate.

So, even though a parent has assigned money or assets to a child that could be considered their earned income, the money will still have to be paid by the parent and taxed at a rate that is reserved for adults. The child will not need to pay any taxes on this earned income until it reaches a certain amount.

In general, the tax rules that exist under the assignment of income doctrine can be confusing. There are several exceptions to these rules and many of them require knowing how to properly apply them to the specific facts of each individual case.

Therefore, if you have any questions about taxable income streams or are involved in a dispute over taxable income with the IRS, then it may be in your best interest to contact an accountant or a local tax attorney to provide further guidance on the matter. An experienced tax attorney can help you to avoid incurring extra tax penalties and can assist you in resolving your income tax issue in an efficient manner.

Your attorney will also be able to explain the situation and can recommend various options to settle the assignment of income issue or any related concerns. In addition, your attorney will be able to communicate with the IRS on your behalf and can provide legal representation if you need to appear in court.

Lastly, if you think you are not liable for paying taxes on income that has been assigned to you by someone else, then your lawyer can review the facts of your claim and can find out whether you may be able to avoid having to pay taxes on that income.

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FAQ: What Is the Assignment of Income?

Assignment of income allows you to assign part of your income directly to another person. While there are several valid reasons to assign your income to someone else, many taxpayers mistakenly believe that it can help lower their taxable income. While assignment of income allows you to divert income, you cannot divert taxes.

In this article, we’ll provide some examples of failed attempts at avoiding income taxes through the assignment of income and the valid reasons someone might want to assign income to someone else.

RELATED: Tax Evasion Vs. Tax Avoidance: The Difference and Why It Matters

You Can’t Use Assignment of Income to Avoid Paying Taxes

The assignment of income doctrine states that the taxpayer who earns the income must pay the tax on that income, even if he gave the right to collect the income to another person.

The doctrine is quite clear: taxpayers must pay their own taxes. However, that doesn’t stop many people from thinking they can avoid paying taxes or minimize their taxable income through the assignment of income.

Here are a few scenarios we commonly see.

• High-Earning Individuals: In an attempt to avoid having to pay the higher tax rates on their substantial income, high-earning individuals sometimes try to divert income to a lower-income family member in a significantly lower tax bracket. The assignment of income doctrine prevents this scheme from working.
• Charitable Donating : Even if a taxpayer assigns part of their income to a charitable organization, they will still have to pay the taxes. However, they might be eligible to claim a deduction for donations to charity while building some good karma by helping others in need.
• Owning Multiple Businesses: A taxpayer who controls multiple businesses might try to divert income from one business to another, especially if one has the potential to receive a tax benefit but requires a higher income to do so. Not only is this illegal, but it also will not lower the taxable income of the business.

You Can Use Assignment of Income to… Assign Your Income

The assignment of income doctrine does not stop you from diverting part of your income to someone else. In fact, that’s the whole point! Maybe you’re helping to support an elderly family member, or you consistently donate to the same charity every month or year. Whatever the case, you can assign the desired amount of your income to go to another person or organization.

While there are no tax benefits involved in assigning income versus making traditional payments or donations, it can be a more convenient option if you’re making regular payments throughout the year.

S.H. Block Tax Services Provides Clear Answers For Complicated Questions

If you have any questions about how to go about assigning part of your income to a family member in need or a separate business entity, please contact S.H. Block Tax Services today. We can answer all of your questions and address all of your concerns regarding the assignment of income and provide suggestions on valid and legal ways to save on your taxes.

Please call us today at  (410) 872-8376  or complete  this brief contact form  to get started on the path toward tax compliance and financial freedom.

The content provided here is for informational purposes only and should not be construed as legal advice on any subject.

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Tax Law on “Assignment of Income”

Gross income is taxed to the individual who earns it or to an owner of property that generates the income. Under the so-called “assignment of income doctrine,” a taxpayer may not avoid tax by assigning the right to income to another. Specifically, the assignment of income doctrine holds that a taxpayer who earns income from services that the taxpayer performs or property that the taxpayer owns generally cannot avoid liability for tax on that income by assigning it to another person or entity. The doctrine is frequently applied to assignments to creditors, controlled entities, family trusts and charities.

A taxpayer cannot, for tax purposes, assign income that has already accrued from property the taxpayer owns. This aspect of the assignment of income doctrine is often applied to interest, dividends, rents, royalties, and trust income. And, under the same rationale, an assignment of an interest in a lottery ticket is effective only if it occurs before the ticket is ascertained to be a winning ticket. However, a taxpayer can shift liability for capital gains on property not yet sold by making a bona fide gift of the underlying property. In that case, the donee of a gift of securities takes the “carryover” basis of the donor. For example, shares now valued at $50 gifted to a donee in which the donor has a tax basis of $10, would yield a taxable gain to the donee of its eventual sale price less the $10 carryover basis. The donor escapes income tax on any of the appreciation.

For more information about this article, please contact our tax professionals at [email protected] or toll free at 844.4WINDES (844.494.6337).

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assignment of income

• A transfer of earnings from one taxpayer to another with the aim to evade tax obligations
• The IRS scrutinized the suspicious transaction for possible assignment of income.
• To avoid higher tax brackets, some individuals consider assignment of income.
• Tax consultants advise caution when dealing with possibilities of assignment of income.
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26 U.S. Code § 61 - Gross income defined

For items specifically included in gross income, see part II (sec. 71 and following). For items specifically excluded from gross income, see part III (sec. 101 and following).

2017—Subsec. (a)(8) to (15). Pub. L. 115–97 redesignated pars. (9) to (15) as (8) to (14), respectively, and struck out former par. (8) which read as follows: “Alimony and separate maintenance payments;”.

1984—Subsec. (a)(1). Pub. L. 98–369 inserted reference to fringe benefits.

Pub. L. 115–97, title I, § 11051(c) , Dec. 22, 2017 , 131 Stat. 2090 , provided that:

Amendment by Pub. L. 98–369 effective Jan. 1, 1985 , see section 531(h) of Pub. L. 98–369 , set out as an Effective Date note under section 132 of this title .

Pub. L. 95–615, § 210(a) , Nov. 8, 1978 , 92 Stat. 3109 , provided that:

Pub. L. 95–427, § 1 , Oct. 7, 1978 , 92 Stat. 996 , as amended by Pub. L. 96–167, § 1 , Dec. 29, 1979 , 93 Stat. 1275 ; Pub. L. 97–34, title VIII, § 801 , Aug. 13, 1981 , 95 Stat. 349 ; Pub. L. 99–514, § 2 , Oct. 22, 1986 , 100 Stat. 2095 , provided that:

Pub. L. 95–615, § 3 , Nov. 8, 1978 , 92 Stat. 3097 , as amended by Pub. L. 99–514, § 2 , Oct. 22, 1986 , 100 Stat. 2095 , provided that no regulations be issued in final form on or after Oct. 1, 1977 , and before July 1, 1978 , providing for inclusion of any fringe benefit in gross income by reason of section 61 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954], ceased to have effect on the day after Nov. 8, 1978 , pursuant to section 210(a) of that Act.

Pub. L. 98–369, div. A, title X, § 1026 , July 18, 1984 , 98 Stat. 1031 , as amended by Pub. L. 99–514, § 2 , Oct. 22, 1986 , 100 Stat. 2095 , provided that:

Pub. L. 98–4 , Mar. 11, 1983 , 97 Stat. 7 , as amended by Pub. L. 98–369, div. A, title X, § 1061(a) , July 18, 1984 , 98 Stat. 1046 ; Pub. L. 99–514, § 2 , Oct. 22, 1986 , 100 Stat. 2095 ; Pub. L. 100–647, title VI, § 6252(a)(1) , Nov. 10, 1988 , 102 Stat. 3752 , provided that:

“This Act may be cited as the ‘ Payment-in-Kind Tax Treatment Act of 1983 ’.

[ Pub. L. 98–369, div. A, title X, § 1061(b) , July 18, 1984 , 98 Stat. 1047 , provided that:

Pub. L. 94–455, title XXI, § 2117 , Oct. 4, 1976 , 90 Stat. 1911 , as amended by Pub. L. 95–600, title I, § 162 , Nov. 6, 1978 , 92 Stat. 2810 ; Pub. L. 99–514, § 2 , Oct. 22, 1986 , 100 Stat. 2095 , provided that no amount be included in gross income of an individual for purposes of 26 U.S.C. 61 by reason of the discharge made before Jan. 1, 1983 of the indebtedness of the individual under a student loan if the discharge was pursuant to a provision of the loan under which the indebtedness of the individual would be discharged if the individual worked for a certain period of time in certain geographical areas or for certain classes of employers.

Pub. L. 94–455, title XXI, § 2119 , Oct. 4, 1976 , 90 Stat. 1912 , as amended by Pub. L. 99–514, § 2 , Oct. 22, 1986 , 100 Stat. 2095 , provided that:

Pub. L. 86–780, § 5 , Sept. 14, 1960 , 74 Stat. 1013 , provided for the exclusion from gross income of any amount received after Dec. 31, 1949 , and before Oct. 1, 1955 , by employees of certain corporations as reimbursement for moving expenses, and the refund or credit of any overpayments.

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Income Assignment

Legal Authority(ies):

• Income Assignments 12 O.S. § 1171.3 & 56 O.S. § 240.2
• Mandatory Nature 43 O.S. § 115
• Changes to Income Assignments 43 O.S. § 117

An income assignment (I/A), or income withholding, is an enforcement remedy used to deduct current and/or past due support from the income of, or benefits due, an obligor. “Income” means any form of payment to an obligor regardless of the source (including, but not limited to, wages, salary, compensation as an independent contractor, worker’s compensation, disability, annuity and retirement benefits). “Delinquent” and “delinquency” mean any payment under an order for which support is due and remains unpaid.

The income assignment remedy is used whether an obligor is current or delinquent in his/her child support obligation. The required elements and steps to send an income withholding to an employer are listed below.

Required Elements:

If the following elements are present, child support sends an income withholding order/notice to any payor of income for an obligor.

• An obligation to pay child support through an order of district or administrative court has been established
• Open child support case
• The obligor has known income from a payor of income
• The obligor’s name, social security number and family group number
• The name(s) of the child(ren) for whom support is ordered
• The custodian of the child(ren) or the name of obligee
• The name of the court issuing the child support order and the date of order
• The amount the obligor is court ordered to pay in current and/or past due child support
• The effective date of the income assignment
• Instructions to the payor of income regarding the amount to deduct based on individual pay schedules and the address to remit deductions
• The current child support has been modified or amended by a court order
• Child support amends/modifies the notice of income assignment to the new court ordered amount, sends a notice to payor of income and lists the effective date of the income assignment.
• The obligor’s court ordered child support and/or past due support obligation is terminated by a court order (child support terminates the notice of income assignment, sends notice to payor of income and lists the effective date of notice of income assignment termination)
• There is an inability to deliver the income withheld to the person entitled to the current and/or past due support and the court orders suspension of the notice of income assignment (child support notifies the payor of income to suspend the income assignment)
• Obligor proves beyond a reasonable doubt he/she is not the person who owes the child support
• Obligor shows the court the amount of current child support or past due child support is inaccurate and warrants modification of the notice of income assignment
• The payor of income shows the court the obligor is not entitled to any income, is not an employee/receiver of benefits or there is no income from which the payor of income may deduct the amounts in the income assignment

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What Is Wage Assignment?

Definition and example of wage assignment, how wage assignment works, wage assignment vs. wage garnishment.

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A wage assignment is when creditors can take money directly from an employee’s paycheck to repay a debt.

Key Takeaways

• A wage assignment happens when money is taken from your paycheck by a creditor to repay a debt.
• Unlike a wage garnishment, a wage assignment can take place without a court order, and you have the right to cancel it at any time.
• Creditors can only take a portion of your earnings. The laws in your state will dictate how much of your take-home pay your lender can take.

A wage assignment is a voluntary agreement to let a lender take a portion of your paycheck each month to repay a debt. This process allows lenders to take a portion of your wages without taking you to court first.

Borrowers may agree to allow a lender to use wage assignments, for example, when they take out payday loans . The wage assignment can begin without a court order, although the laws about how much they can take from your paycheck vary by state.

For example, in West Virginia, wage assignments are only valid for one year and must be renewed annually. Creditors can only deduct up to 25% of an employee’s take-home pay, and the remaining 75% is exempt, including for an employee’s final paycheck.

If you agree to a wage assignment, that means you voluntarily agree to have money taken out of your paycheck each month to repay a debt.

State laws govern how soon a wage assignment can take place and how much of your paycheck a lender can take. For example, in Illinois, you must be at least 40 days behind on your loan payments before your lender can start a wage assignment. Under Illinois law, your creditor can only take up to 15% of your paycheck. The wage assignment is valid for up to three years after you signed the agreement.

Your creditor typically will send a Notice of Intent to Assign Wages by certified mail to you and your employer. From there, the creditor will send a demand letter to your employer with the total amount that’s in default.

You have the right to stop a wage assignment at any time, and you aren’t required to provide a reason why. If you don’t want the deduction, you can send your employer and creditor a written notice that you want to stop the wage assignment. You will still owe the money, but your lender must use other methods to collect the funds.

Research the laws in your state to see what percentage of your income your lender can take and for how long the agreement is valid.

Wage assignment and wage garnishment are often used interchangeably, but they aren’t the same thing. The main difference between the two is that wage assignments are voluntary while wage garnishments are involuntary. Here are some key differences:

Once you agree to a wage assignment, your lender can automatically take money from your paycheck. No court order is required first, but since the wage assignment is voluntary, you have the right to cancel it at any point.

Wage garnishments are the results of court orders, no matter whether you agree to them or not. If you want to reverse a wage garnishment, you typically have to go through a legal process to reverse the court judgment.

You can also stop many wage garnishments by filing for bankruptcy. And creditors aren’t usually allowed to garnish income from Social Security, disability, child support , or alimony. Ultimately, the laws in your state will dictate how much of your income you’re able to keep under a wage garnishment.

Creditors can’t garnish all of the money in your paycheck. Federal law limits the amount that can be garnished to 25% of the debtor’s disposable income. State laws may further limit how much of your income lenders can seize.

Illinois Legal Aid Online. “ Understanding Wage Assignment .” Accessed Feb. 8, 2022.

West Virginia Division of Labor. “ Wage Assignments / Authorized Payroll Deductions .” Accessed Feb. 8, 2022.

U.S. Department of Labor. “ Fact Sheet #30: The Federal Wage Garnishment Law, Consumer Credit Protection Act's Title III (CCPA) .” Accessed Feb. 8, 2022.

Sacramento County Public Law Library. “ Exemptions from Enforcement of Judgments in California .” Accessed Feb. 8, 2022.

District Court of Maryland. “ Wage Garnishment .” Accessed Feb. 8, 2022.

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• Corporate Finance
• Corporate Finance Basics

Assignment of Proceeds: Meaning, Pros and Cons, Example

Diane Costagliola is a researcher, librarian, instructor, and writer who has published articles on personal finance, home buying, and foreclosure.

Investopedia / Jiaqi Zhou

What Is an Assignment of Proceeds?

An assignment of proceeds occurs when a beneficiary transfers all or part of the proceeds from a letter of credit to a third-party beneficiary . Assigning the proceeds from a letter of credit can be utilized in many types of scenarios, such as to pay suppliers or vendors in a business transaction or to settle other debts.

Key Takeaways

• An assignment of proceeds can be used to redirect funds from a line of credit to a third party.
• An assignment of proceeds must be approved by the financial institution that granted the line of credit following a request and fulfillment of any obligations by the original beneficiary.
• A benefit of this type of transaction is the ability to redirect only a portion of the proceeds, in which case both the original beneficiary and third party can access the same letter of credit.
• A drawback of this type of transaction is that the original beneficiary is still responsible for fulfilling all requirements under the letter of credit, even when the funds are redirected to the third party.
• This type of transaction is used in a number of circumstances, such as when paying suppliers or vendors, or when settling outstanding debts.

Understanding an Assignment of Proceeds

A letter of credit is a letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make a payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase. The original beneficiary, the named party who is entitled to receive the proceeds from a letter of credit, may choose to have them delivered to a third party instead, through an "assignment of proceeds."

Due to the nature of international dealings, including factors such as distance, differing laws in each country, and difficulty in knowing each party personally, the use of letters of credit has become a very important aspect of international trade.

In order to process an assignment of proceeds, the original beneficiary of the letter of credit must submit a request to the bank or other financial institution issuing the letter of credit requesting to assign the funds to a different individual or company. The assignment of proceeds will need to be approved by the financial institution once it is submitted, pending the fulfillment of any requirements set forth in the letter of credit.

If the original beneficiary does not meet the obligations outlined in the letter of credit, no assignment will take place. Once approved, the bank or other entity will release the money to the specified third party to be drawn upon at will.

Advantages and Disadvantages of an Assignment of Proceeds

The main benefit of an assignment of proceeds is that the original beneficiary has the ability to assign all or just a portion of the letter of credit to the third party. The original beneficiary will retain access to any portion of the proceeds not redirected to the third party. This allows both entities to make use of the same letter of credit when necessary.

This benefit must be weighed against the potential drawback of this type of transaction. When an assignment of proceeds takes place, the financial institution is not contracting directly with the third-party beneficiary. It is only acting as an agent in supplying the funds to the third party. The original beneficiary is still responsible for completing any and all requirements under the letter of credit.

Example of an Assignment of Proceeds

Assume XYZ Customer, in Brazil, is purchasing widgets from ABC Manufacturer, in the United States. In order to sign off on the deal, ABC Manufacturer requires that XYZ Customer obtains a letter of credit from a bank to mitigate the risk that XYZ may not pay ABC for the widgets once ABC has shipped them out of the country.

At this point, ABC Manufacturer is able to request that a portion of these funds be redirected to DEF Supplier, whom ABC still owes money for parts used in making the widgets. Even though a portion of the funds has been redirected to DEF Supplier, ABC Manufacturer still has to fulfill its obligations under the letter of credit, such as shipping out the widgets to XYZ.

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What is in the 2024 federal budget for age pensioners?

The 2024 federal budget has been handed down, with Treasurer Jim Chalmers spruiking cost-of-living relief measures. 

Here's what the budget means for seniors on the age pension. 

What's in the budget for pensioners?

In his speech, Mr Chalmers made few mentions of pensioners.

He didn't call out any budget measures that were specifically for people on the age pension.

However, here are three key items that could have an impact: 

Deeming freeze

There will be a freeze on social security deeming rates for another financial year — that's just extending a freeze that was already in effect. 

Explain deeming rates to me

You might remember that  both parties pledged to halt deeming rates back in 2022  as they were heading into the federal election. 

Mr Chalmers said this extension of the freeze would benefit 450,000 aged pensioners.

But this is something that will only benefit pensioners who get income from deemed financial investments. 

There will also be a freeze on the cost of medications on the Pharmaceutical Benefits Scheme (PBS) for the next five years. 

So that means that medications will continue to cost $7.70. 

Changing Medicare levy thresholds

The government will increase the Medicare levy low-income thresholds. 

The goal of this is to ensure "low-income individuals continue to be exempt from paying the Medicare levy or pay a reduced levy rate," the budget papers say . 

For single seniors and pensioners, the threshold has been increased from $38,365 to $41,089 The family threshold for seniors and pensioners has been increased from $53,406 to $57,198

But they're only being increased to keep up with inflation — not as a major policy change. 

Is there a special payment for pensioners?

No, there was no announcement about a specific payment for pensioners. 

Pensioners will benefit from a $300 reduction in power bills, but this is something every household will get.

The energy rebates are not payments — they'll be deducted from power bills.

And keep in mind that they'll be applied in quarterly instalments, not all in one hit.

So your next quarterly power bill will likely be $75 cheaper, not $300 cheaper.

Will the age pension be increased?

There was no announcement about increasing the age pension. 

Pensions are typically increased twice a year to reflect changes in pensioners' costs of living and wage increases.

The last increase was in March , when age pensions were increased by $19.60 a fortnight for singles and $29.40 a fortnight for couples.

What is deeming?

It's part of the income test for Centrelink payments, including the age pension.

Deeming is a set of rules the government uses to work out how much income people earn from their financial assets — things like shares, superannuation and bank accounts. 

It assumes people receive a set income from the interest on those investments, whether they actually get that much or not.

But here's the kicker: if your investment return is higher than the deemed rate, the government doesn't count that extra money as part of your income.

That means anything you earn above that rate isn't counted in the income test for the age pension.

So, the lower the deeming rate, the more people can earn from their investments without it affecting their pension payments.  

Editor's note (15/05/2024): An earlier version of this story incorrectly stated that pensions are typically increased four times a year. Pensions are indexed twice a year — in March and September. The article has been updated to reflect this.

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• Cost of Living

Don't call them DINKs. Many childfree adults are ALICEs.

• DINKs are known for having disposable income, but some childfree adults are also struggling.
• In fact, many childfree adults are ALICEs — asset-limited, income-constrained, and employed.
• Without dependents, many low-income workers have a harder time accessing tax credits and government assistance.

America's DINKs — dual-income couples with no children — are known for having disposable income and spending their paychecks on major investments, luxury vacations , and early retirement .

These households have previously told Business Insider that they can spend extra money on their lifestyle because they don't have any child-related costs. By definition, DINKs aren't necessarily rich , but they do have a reputation for living a life of freedom and excess cash.

A growing number of child - free adults , however, are falling through the cracks of the US economy. Many low-income childfree adults fall into the ALICE category — people who are asset-limited, income-constrained, and employed. Twenty-nine percent of US households make too much to qualify for government assistance but not enough to comfortably afford daily life . And ALICEs who aren't parents face unique challenges: it is especially difficult to qualify for financial help or tax credits without young children, even if you need the help.

According to a report published in April by the Brookings Institution, the US doesn't have a strong financial safety net to support childfree ALICEs. This is partly because having financially dependent children is a prerequisite of some government assistance programs .

Poor, non-elderly adults who are not raising children and don't qualify for disability benefits made up nearly 106 million people in 2017, according to a Census analysis . What's more, they have a higher risk of experiencing homelessness and long-term poverty, per the Brookings report.

Low-income adults without children face barriers to government assistance

Low-income, childfree adults have a higher likelihood of falling into poverty, and often stay in poverty long-term because they can't access assistance, wrote Robert Greenstein, the author of the Brookings report.

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"The safety net for these non-elderly childless adults is so limited, those non-elderly adults who are poor tend to be poorer than others living in poverty," wrote Greenstein, who is also a visiting fellow of economic studies for the Brookings Institution, which is affiliated with The Hamilton Project, an economic policy initiative.

The report found that half of the Americans living in "deep poverty" — those with incomes that are at or below 50% of the poverty line, which is $7,290 annually for one person — are childfree adults not receiving disability benefits.

Greenstein wrote that this population is at a disadvantage when applying for government support, especially as it comes to tax credits and housing assistance, even if their household income is low.

For example, they don't qualify for the child tax credit , which allows families with dependents to receive thousands of dollars in tax breaks each year. The Earned Income Tax Credit — which offers refundable tax credits for low- and moderate-income workers — is also very limited for childfree employees, who receive fewer than 4% of the EITC's overall benefits, according to the Brookings report.

Greenstein also wrote that over 7 million low-income adults who are between the ages of 18 to 61 and don't live with minors pay more than 50% of their income on rent — making them severely rent-burdened. The majority of these adults don't receive any state or federal rental assistance.

Additionally, parents can more easily access SNAP food benefits than childfree adults because they are exempt from having to work a required amount of hours each week to receive assistance.

Many Social Security and Medicare programs also primarily offer assistance to older adults, excluding adults under 62.

Although strengthening the US financial safety net for this population is complex, Greenstein offered a few solutions. He suggested expanding the Earned Income Tax Credit to benefit more adults without children, along with removing the extra qualifications childfree adults must meet to access SNAP benefits.

An expansion of Medicaid through the Affordable Care Act would also allow more adults to get the healthcare they need — even if they don't qualify for disability benefits or Social Security, Greenstein said.

Are you making an income above the poverty line but still struggling to afford daily life? Have you faced challenges qualifying for government assistance because you don't have children? Reach out to this reporter at [email protected] .

Watch: Supreme Court strikes down Biden's student-debt relief plan

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