An annuitant's exclusion ratio is 70 percent. He receives fixed income payments of $1,000 monthly. How much of each payment is includible in his income?

Question

1. $400
2. $700
3. $1,000
4. $300

Answer 1

To determine how much of each monthly payment is includible in the annuitant's income, we need to apply the exclusion ratio.

Since the exclusion ratio is 70%, it means that 70% of the payment is considered a return of principal (not taxed), while the remaining 30% is includible income.

1. Monthly fixed payment = $1,000
2. Exclusion ratio = 70%

To find the amount that is includible in income:

Includible amount = Monthly payment × (1 - exclusion ratio) Includible amount = $1,000 × (1 - 0.70) Includible amount = $1,000 × 0.30 Includible amount = $300

Therefore, the amount includible in the annuitant's income is $300.

The correct answer is 4. $300.