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Why Do the Blind Get a Tax Break?And other questions about the IRS, with answers from our archives.

By Samantha HenigPosted Tuesday, April 14, 2009, at 5:12 PM ET

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Americans living and working abroad are often allowed to exclude tens of thousands of dollars of income and the cost of housing from their federal taxes. How come?

Because the country wants to encourage businesses to expand overseas. The Foreign Earned Income Exclusion statute, introduced in 1954, makes it more appealing for U.S. citizens to work a couple of continents away by offering them massive tax breaks. It's a sweet deal for people sent to Third World countries, where local taxes are barely existent. But for corporate types sent to London or Paris, the high European taxes could basically negate the hometown perks. (For more on tax breaks for Americans working abroad, read this Explainer from 2003.)

Is there any way to have someone else pay your taxes for you?

Yes, but it has its own tax implications. Since having your tax bill covered is a form of income, you'd be liable for the taxes on the taxes that were paid on your behalf. (For more on having someone else pay your taxes, read this Explainer from 2006.)

Do informants have to pay taxes on the rewards they get from the government for revealing terrorists' whereabouts?

Well, they should. Reward money has been subject to taxation since 1913, so terrorist informants do owe taxes on their earnings. Congress can choose to exempt a specific reward from being taxed, and there are other ways around the informant tax. David Kaczynski was awarded $1 million in 1998 for helping the FBI crack the case on his brother, Ted, the Unabomber, which he intended to use for legal fees and to pay the families of his brother's victims. Despite the noble intentions, he would have been taxed on that money at the highest rate. By putting it into a fund administered by a charity, he cut down his liability. (For more on reward money for terrorist informants, read this Explainer from 2003.)

So terrorist informants don't get tax breaks, but the blind do? What's the deal with that?

It's a result of the Revenue Act of 1943, which provided a slew of tax breaks, including a $500 deduction for the blind, meant to offset their higher cost of living. The tax break is available to anyone who can't see better than 20/200 or who has a field of vision of less than 20 degrees. People with other medical disabilities can deduct significant medical expenses from their income, but not all conditions are as easy to diagnose as blindness. (For more on tax breaks for the blind, read this Explainer from 2005.)

What if you cheat on your taxes—are you going to end up in an orange jumpsuit on a dingy cot?

Not likely. Tax cheats end up in prison if they're found guilty in criminal court. But the government has the time and money to make criminal charges against only a few thousand people each year. Most of the cases are tried in civil court, where a fine—not a jail sentence—is the punishment for fraud. Careless filers can also get hit with a fine: The IRS imposes a 20 percent "negligence" penalty on people who recklessly disregarded the rules. (For more on what happens to tax tricksters, read this Explainer from 2006.)

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