Most of us are keenly aware of the major taxes we’re required to pay every year. As you begin to close out the end of another tax year, that final line on Form 1040 becomes clearer and clearer in your mind as you estimate how much you’ll owe or how large your refund will be. For most individual taxpayers, federal taxes often make up the largest portion of our tax requirement. However, as Americans, we’re responsible for paying many other taxes, some during tax season and others throughout the year.

State & Local Income Tax

State income taxes can also make up a decent slice of the tax expense pie. This type of tax is more geographically sensitive, as some states do not impose an income tax, and can differ in application from state to state. For example, some states only tax unearned income, such as dividends and interest, and these states vary significantly in regards to the top marginal tax rates. California has a top rate of more than 13%, while the top rate in several states—including Indiana and Pennsylvania—is less than 4%. The federal tax code is based on a marginal tax rate, where the tax gets higher up to a maximum rate as our taxable income increases. Most states use a marginal tax rate system or employ a flat tax (at a set percentage) to apply to state taxable income. For more information on income taxes in your state, click here.

Income tax doesn’t stop at the state level—many of us have to consider local income taxes, too. Depending upon your city, you may be subject to a city income tax if you live or work in said city. In the U.S., 14 states, as well as DC, allow cities, counties, and municipalities to levy their own individual income taxes. These local taxes are, of course, in addition to any applicable federal and state taxes that you’re required to pay. Some states, like Missouri, only impose local taxes for their largest cities (St. Louis and Kansas City). On the other hand, Ohio has hundreds of municipalities and cities that levy their own taxes. The best way to uncover whether your city imposes local income taxes is to visit your local government website.

Property and Payroll

Of course, federal, state, and local taxes are just the beginning for many taxpayers. Property taxes and payroll taxes also make up a fairly sizeable amount of money we pay at times throughout the year. Property taxes are collected differently in that they are often escrowed with a homeowner’s mortgage, meaning amount of property taxes you are paying is somewhat less obvious. In fact, many property owners are unaware of the amount of property taxes they are paying since they don’t have to write a separate check for these taxes every month.

If you regularly audit your pay stubs, you likely have a very good idea of the payroll taxes you’re responsible for each time you get paid. These can take a serious bite out of your paycheck. Payroll taxes include:

  • Social security—6.2% of your paycheck is allocated, up to a certain wage threshold, to paying the social security tax. Your employer is also responsible for paying 6.2%.
  • Medicare—1.45% of your paycheck if allocated to Medicare. If your salary is above $200,000 per year, this increases by .09%, and there is no upper wage threshold.

Everything Else

So far, we’ve discussed many of the taxes you’re already well aware of. But, what about some of the taxes we’re required to pay daily that you may not be as familiar with? Taxes come in all shapes and sizes and can be found nearly any place money is transferred. Here’s a list of some taxes you should be aware of:

  • Gasoline
    • Taxes on gas range by state, and are typically around $0.25 per gallon.
    • The Federal Reserve also collects $0.184 per gallon on gas and $0.244 per gallon on diesel.
    • A bill has been introduced to increase the amount collected by the Fed between now and 2020.
  • Cigarettes (considered luxury tax/sin tax)
    • There is a large disparity between states in the amount of excise tax imposed. For example:
      • New York state imposes more than $4 excise tax a pack and New York City adds on $1.50 a pack.
      • North Carolina charges $0.45 cents per pack.
  • Liquor (considered luxury tax/sin tax)
    • Like cigarettes, the amount varies by state, and many cities impose an additional excise tax on liquor.
  • Air travel
    • The Fed collects an excise tax of 7.5% on domestic flights.
    • There are also additional fees per flight.
    • Taxes can be higher for international travel.
  • Taxi Cabs
    • Some states and cities impose a tax on taxicab and/or limo rides.
    • This tax can differ in nature and structure. For example, Nevada has a 3% excise tax on taxicab rides while NYC has a flat 50 cent hail vehicle trip tax for most taxicab rides that begin in the city.
  • Hotel/Motel Tax
    • You pay additional taxes when you stay at a hotel or motel.
    • These taxes can be more than 15 percent in some high demand coastal cities like New York City and San Francisco, but also in Indianapolis, Columbus, Nashville and Houston, to name a few.
  • Luxury Taxes
    • For sports organizations, luxury taxes are applied if payroll is over a certain amount.
    • These can exist to level playing field by collecting from higher revenue teams and help provide some of that revenue to smaller market teams.
  • Rental Car Tax
    • This tax has existed since 1990 and is imposed by states and cities to fund projects.
    • Like many of these taxes, the rental car tax can vary significantly with many states and cities, totaling more than 10 percent.
  • School Tax
    • School taxes are entirely dependent on where you live.
  • Telephone Fed Excise Tax
    • This was was partially repealed in 2006.
    • The Fed excise tax now exists on local-only service.
    • State and local taxes can be imposed, such as in the form of sales tax or gross receipts tax.
  • Utility tax
    • Some states and municipalities impose an electricity excise tax.
    • This tax is typically based on kilowatt per hour.
  • Personal property taxes
    • Many states, counties and cities impose a personal property tax on tangible property.
    • This tax is often based on the estimated fair market value of the property.
  • License Taxes
    • Marriage license
    • Hunting license
    • Fishing license
    • Vehicle license registration
  • Estate taxes
    • Levied on deceased’s estate by fed if over certain limit (around $5 million).
    • State estate taxes are levied on deceased estates by certain states, and different exemption limits.
    • Inheritance taxes—Six states levy tax on beneficiaries who receive property from deceased.
    • Gift taxes are related to estate taxes. If you gift over a certain amount annually ($14,000 for the 2015 tax year), then it reduces the lifetime estate tax exemption. The lifetime exemption is currently over $5 million, so this is a non-issue for many taxpayers, however filing gift tax returns may still be required depending upon the circumstances. Taxpayers would not actually owe any gift tax unless they have exhausted the lifetime exemption amount. If tax is due, this tax is typically paid by the donor rather than the recipient.    

If that seemed like a whirlwind, you’re not alone. Everyday, we work with taxpayers to help craft real strategies to deal with the mess of taxes. Ultimately, it’s our goal to make taxes simpler to understand while removing the burden of dealing with taxes from your shoulders. If you have questions about taxes you are (or may be) paying, give us a call, and we can help sort through the clutter.