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What is Payment in Kind?

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  • Written By: Mary McMahon
  • Edited By: Kristen Osborne
  • Last Modified Date: 25 November 2016
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Payment in kind is compensation provided in the form of goods and services of value, rather than in cash format. The practice is ancient and it can be seen in a number of societies around the world. If someone will be compensated for goods or services in kind, this must be disclosed at the start of the transaction, offering an opportunity to decline.

One example is food and board. This is a form of payment often offered to people like ranch hands and live-in staff. Typically, the staff member receives a small wage as well, with the room and board being provided as part of the overall compensation package. Barter is another example; a farmer might, for example, swap eggs for vegetables.

Many companies offer payment in kind as part of their benefits package, in the form of bonds and other securities deposited into retirement accounts on behalf of employees. Companies can also offer shares in themselves to employees as a form of compensation. The company discount offered to many retail employees is another example. In all of these cases, compensation is not being provided in legal tender, but the provider of goods and services is still receiving something of value.

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Companies may be able to offer better benefits if they can use payment in kind. For example, a company may not be able to offer very high wages as a startup, but it can offer shares that may accrue value. Likewise, people who work for restaurants, cafes, and bakeries typically receive staff meals, which allows their employers to provide them with benefits without going bankrupt on payday.

When payment in kind is offered, it must be of comparable value to the cash which someone would have received. Sometimes there are advantages to accepting payment in this way. For example, people who take shares in a company may find that those shares appreciate in value and later become worth much more.

This phrase is used in a special sense when it involves bonds. A bond that offers payment in kind pays out interest in the form of more bonds, instead of cash. In some cases the interest may simply be added to the principal. The terms of the payments are disclosed at the time of purchase.

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anon971060
Post 5

I am receiving a flat in exchange for one year's work. Is this taxable?

anon261260
Post 4

This does not help me to understand if 'payment in kind' means the receiver files a form 1099 or has the right to expect to be treated as an employee. This is particularly confusing because the recipient receiving health insurance, and or food and or lodging, may decide not to do the all the work, or to set their own schedule, etc., clearly not acting like an employee.

ajvician
Post 3

Personally, I think payments in kind are a great way to keep the economy going. This way of doing business can also be known as bartering.

I know plenty of people that do these types of "favors" for one another. A friend of mine does her sister's hair and her sister does her nails -- no big deal!

I don't think the IRS would care so much about that type of (read small) payment in kind, but be careful if it is something large, I don't think the IRS would care so much about that type of (read small) payment in kind, but be careful if it is something large, such as putting on a roof for someone while

they install your brick wall, especially if you are a roofer and he is a mason.

I have heard some interesting stories about the IRS wanting to get their cut. In many instances the IRS considers payment in kind as ordinary income and they *will* want you to claim it as such on your tax return.

icecream17
Post 2

@Sneakers41 - I also know that some companies offer employees a pension plan which is a form of a payment in kind for maintaining their loyalty to the company.

Here an employee will receive a future annuity in exchange for their years of service with the company. There are other payments in kind that company’s offer such as a car allowance or company car and an employee stock plan in which the employee receives stock from the company based on the years of service. This really helps an employee and usually keeps them working for the company for years.

sneakers41
Post 1

I know that lot of charities accept payments in kind in lieu of monetary donations. Sometimes a business like a restaurant might donate food and beverages to a charitable event instead of giving money to the charity. Other businesses might give complimentary goods and services that will help the charity raise money.

I know that sometimes businesses as well as individuals might settle for payments in kind if the good or services are substantial enough.

For example, a teacher at an elite private school might accept a 50% to a 100% discount on the tuition for her children as well as some compensation for working at the school. When businesses do this they usually have lower rates of turnover because many employees really rely on these benefits.

That is what they do at my children's school and so far many of teachers have stayed put.

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