Payment in Kind (PIK)
What it is:
How it works/Example:
Payment in kind may be made for an exchange of goods or services for work performed. The value of the goods or services is considered an equal exchange for the work performed.
Examples for payment in kind may be room and board in exchange for home or grounds maintenance or company stock or other securities instead of cash in a retirement plan.
A loan is referred to as "paid in kind" when a similar article is returned by the borrower. In the case of a will, payment in kind allows the trustee to make distributions to the beneficiaries using equivalent values rather than having to sell assets to get cash. For example, if an estate is to be divided equally among beneficiaries, the items may be distributed based their value and not their actually conversion to cash, allowing the trustee to distribute cars, houses, jewelry, and even stocks of equal worth.
Why it matters:
Payments in kind in the place of wages are still taxable. For example, employees will have payments in kind reported on their W-2 form. If a business receives payment in kind as a payment for goods or services, it must include the fair market value of the payment in kind item. Payments in kind to business are reported on the business's Form 1099-B, "Proceeds from Broker and Barter Exchange Transactions."