10 hidden taxes you didn't know you're paying

We need to get this to the Fiscal Cliff! What could go wrong? (Photo credit: DonkeyHotey)

By 

JILL SCHLESINGER / 

MONEYWATCH/ November 12, 2012, 11:06 AM

Taxes (Photo credit: Tax Credits)

(MoneyWatch) The dreaded "fiscal cliff" could raise taxes for 80 to 90 percent of Americans, if no deal occurs before the end of the year. But with attention focused on the political wrangling in Washington, the American Institute of CPAs is out with 10 common taxes many Americans don't realize they are paying. To help individuals plan for these insidious taxes, the AICPA has also created the Total Tax Insights calculator."

1. Medicare tax: The amount withheld by your employer from your paycheck (often under the line item "FICA," which stands for Federal Insurance Contributions Act) helps cover the cost of running the Medicare program, the federal system of health insurance for people over the age of 65. Employers pay one half of the FICA tax and employees pay the other half. The employee contribution is 6.2 percent for Social Security and 1.45 percent for Medicare on wages up to $110,100. The temporary payroll tax cut for tax years 2011 and 2012 reduced the employee portion for Social Security by 2 percent.

USFederalSocialInsuranceTaxShareByIncomeLevel.1979-2007 (Photo credit: Wikipedia)

2. Self-employment tax: A Social Security and Medicare tax for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. The self-employment tax consists of two parts: 12.4 percent for Social Security and 2.9 percent for Medicare (hospital insurance) on income up to $110,100. However, the temporary payroll tax cut for tax years 2011 and 2012 reduced self-employment tax by 2 percent. ...

USFederalTotalTaxShareByIncomeLevel.1979-2007 (Photo credit: Wikipedia)

3. Alternative minimum tax (AMT): ... In essence, it is a flat tax with two brackets, 26 percent and 28 percent. The problem with AMT is that it now ensnares not only the wealthiest Americans, but 4 million to 5 million taxpayers with annual incomes between $200,000 and $1 million. Congress has yet to approve a new inflation "patch" that would allow millions to escape AMT (the last patch expired in December). If a new one is not enacted, the AMT will hit 31 million taxpayers this year, reaching deeply into the middle class.

Share of federal excise taxes paid by US households reporting different income levels, 1979-2007 (Photo credit: Wikipedia)

The utility taxes that Americans pay can add up quickly, as do the so-called "sin taxes" on alcohol and tobacco products.

4. Electricity or natural gas tax: A tax collected by energy suppliers based on consumption during the billing period.

5. Cable tax: Tax imposed on cable television subscribers.

6. Landline phone tax: Federal and state tax associated with use of a fixed phone line.

7. Cellphone tax: Federal and state tax imposed on mobile telephone users.

8. Federal and state gasoline tax: A tax on every gallon of gasoline sold, which account for 11 percent of the cost of a gallon of gas, according to the Energy Information Administration. ...

9. Cigarette tax: The tax on cigarette use varies from state to state. New York City has the highest rate, ....

10. State alcohol tax: The tax imposed on the purchase of beer, wine and spirits varies state by state. The highest rate for spirits can be found in Washington and the highest for beer is Alaska. Wyoming has the lowest rate.

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Jill Schlesinger, CFP®, is the Editor-at-Large for CBS MoneyWatch. She covers the economy, markets, investing or anything else with a dollar sign. Prior to the launch of MoneyWatch in 2009, Jill was the chief investment officer for an independent investment advisory firm. In her infancy, she was an options trader on the Commodities Exchange of New York.

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Larger Withdrawals From IRAs in 2010 May Help Savers With Taxes

Bloomberg

By Danielle Kucera - Oct 20, 2010 11:01 PM CT
For U.S. taxpayers making mandatory withdrawals from an individual retirement account, 2010 may be a good year to take out more than necessary because tax rates may rise. …
Savers who may be in a higher tax bracket next year should consider withdrawing more than the minimum in 2010, said Mark Nash, a partner in the Dallas office of the New York-based Private Company Services practice of accounting and advisory firm PwC. Required withdrawals are based on a formula of the account balance and the individual’s age.
“Pulling out a large sum in 2010 would lessen the 2011 amount, and make that year’s distribution lower,” said Nash, who advises high net-worth investors. …
The U.S. government suspended required minimum distributions for tax year 2009 in response to plummeting account balances after the Standard & Poor’s 500 Index dropped 38 percent in 2008. Mandatory distributions returned in 2010 as the economy strengthened and the S&P 500 rose 23 percent in 2009. Roth IRAs, which are funded with post-tax dollars, are exempt from minimum withdrawal rules while the owner is alive.

Rising Rates

President Barack Obama has proposed allowing the top two marginal income tax rates to rise to 39.6 percent and 36 percent from 35 percent and 33 percent for individuals earning more than $200,000 and couples making more than $250,000. Congress is scheduled to take up taxes when it returns from recess in November.
“This uncertainty doesn’t mean that people shouldn’t be sitting down and doing their planning now,” said Greg Rosica, a tax partner at consulting firm Ernst & Young LLP in Tampa, Florida, and contributing author to the Ernst & Young Tax Guide.
Someone who may be in a lower tax bracket in 2010 because of large deductions or less income should also consider taking a bigger distribution this year to take advantage of lower rates, said Rebecca Pavese, an accountant at Palisades Hudson Financial Group’s national tax practice in Atlanta.

Combine Withdrawals

Taxpayers who aren’t already taxed at top rates should make sure taking a bigger distribution won’t tip them into a higher bracket, said Bill Fleming, a managing director in the Hartford, Connecticut, office of PwC. …
Those who pay estimated taxes during the year can request the account administrator to withhold money from their RMDs and pay income tax just once at the year’s end, said Rosica of Ernst & Young. That way they can hold onto their money longer and invest it without paying a penalty for underpayment, Pavese said.
The law assumes that payments are made equally throughout the year unless the taxpayer states otherwise, according to the IRS.

Charity Deduction

… Any IRA account holder can give all or part of a distribution to charity and take a deduction for the donation, said Debbie Cox, a Dallas, Texas-based wealth adviser for J.P. Morgan Private Bank, which is based in New York. A provision that allowed taxpayers to roll over a distribution directly to a charity and avoid income tax expired at the end of 2009, she said.
IRA holders should also try to take their required withdrawals at roughly the same time every year to avoid mistakes or forgetting about it, Fleming, of PwC, said.
To contact the reporter on this story: Danielle Kucera in New York at dkucera6@bloomberg.net.
To contact the editor responsible for this story: Rick Levinson at rlevinson2@bloomberg.net.

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Obama Tax Credit May Cause Millions to Owe More Taxes

Financial Planning magazine

By WebCPA

November 17, 2009

The Making Work Pay Credit, a tax credit that was a signature part of President Obama’s economic stimulus package in February, could lead to more than 15.4 million people owing additional taxes, according to a new government report.

… The credit is advanced to taxpayers by their employers through reduced withholding, resulting in an increase in take-home pay.

The Treasury Department’s Inspector General for Tax Administration said in a new report that the implementation of the tax credit creates the possibility that millions of taxpayers may be advanced more of the credit through reduced withholding than they are entitled to receive. When filing their tax returns for 2009 and 2010, such taxpayers may ultimately owe additional taxes.  Some also may be subject to estimated tax penalties.

The MWPC was implemented using new income tax withholding tables. However, the changes to the withholding tables did not take into consideration the dependents who receive wages; single taxpayers with more than one job; and joint filers where one or both spouses have more than one job or both spouses work. Other groups potentially affected include: individuals who file a return with an Individual Taxpayer Identification Number; those who receive pension payments; and Social Security recipients who receive wages. …

“While implementing a credit through reduced withholding is an effective way to provide economic stimulus evenly throughout the year, it is difficult to account for everyone’s circumstances,” said TIGTA Inspector General J. Russell George in a statement. “More than 10 percent of all taxpayers who file individual tax returns for 2009 could owe additional taxes because their withholdings were reduced by more than the Making Work Pay Credit. If corrective actions are not taken, this problem will continue to plague taxpayers in 2010.”

TIGTA recommended that the IRS increase media coverage, consider ways of advertising other than the media already being used, and target communications to taxpayers who may be adversely affected as a result of the MWPC. TIGTA also recommended that the IRS use the withholding tables that were in effect before the enactment of the Recovery Act for pension payments in order to prevent pensioners from being negatively affected by the MWPC.

The IRS agreed with TIGTA’s first recommendation and plans to take corrective action. However, the IRS did not agree with the second recommendation, claiming that it would be burdensome and costly.