Final answer:
Yes, Jessica must include the $60 garnished from her salary in her gross income for tax purposes because it is considered earned income, even if it is directly paid to the creditor.
Step-by-step explanation:
Jessica, who is a cash basis taxpayer, is required to include the $60 that is garnished from her salary each week in her gross income, even though the creditor benefits from it. This is because from a tax perspective, income is considered earned when it is received or made available to a taxpayer without restrictions.
The fact that the creditor is receiving the payment directly from the employer does not alter the taxpayer's obligation to report this as income. This would be the same as if Jessica received the $60 herself and then paid the creditor. Once she has control over her earnings, they become taxable, and the garnishment by the bank does not exempt her from reporting this as part of her income.
As for the garnishment, it represents a legal process by which a creditor can collect what they are owed by taking directly from a borrower's wages. When garnishment occurs, the employer withholds a portion of the employee's earnings and sends it directly to the creditor. However, for taxation purposes, this garnished amount still counts as income to the employee because it was earned by them, even if they never have personal access to it.