The term “compensation” can include a variety of different definitions and derive from many different sources. The definition of compensation can be analyzed in a few different methods. These methods include sources of compensation, the taxationn of compensation and types of income. Each of these will be examined in more detail below.
The sources of compensation are almost limitless but most commonly include self-employment income, wages and earnings from an employer, dividends, capital gains, welfare, unemployment benefits, the Supplemental Nutrition Assistance Program (also known as the Food Stamp Program), WIC payments, AFDC benefits, TANF payments and more. Depending on your welfare definition, the last five items of income listed are generally provided by state, local or federal governments and are a form of welfare benefit and payment. By far, the most common type of income earned by people is a salary paid by an employer. Salaries have been paid since the early ages of human civilization. For example, the Book of Ezra from the Old Testament of the Hebrew Bible (dating back to approximately 550 B.C.) references people being paid (see Chapter 4, Verse 14 and the reference to “salt”, which experts have shown is relating to payment). Furthermore, plenty of evidence exists that salaries were paid to Roman soldiers as well.
The taxation of compensation has existed for as long as compensation has existed. In the United States, the issue of taxes has been a contentious issue from the beginning of the country. For example, the infamous Boston Tea Party was sparked by the levy of taxes by the King of England on the British Colonies’ tea. The tax schemes throughout the world vary wildly and include direct taxes on income earned, indirect taxes through various programs, a national sales tax and payroll taxes paid by employers.
When it comes to earning compensation there are two primary types: active and passive. As the name implies, active compensation is earned through the tradeoff of time for money by an individual. Passive income is earned without the individual having to trade time during the day for a paycheck. Obviously, we would all like to live solely off of passive income. The reality is that if we all were able to earn passive income, the economy would come to a halt! Still, the more passive income you can earn, the better.
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