I’m sure that everyone that fell for the $4500 cash for clunkers program was duly informed that the $4500 credit would be counted as taxable income. After all, Barack Obama is the Transparency President, right?
This reminds me of Oprah’s super awesome car giveaway where everyone screamed, then got mad when they had to pay taxes on their new gift.
- That $4500 counts as taxable income. Assuming you are a low income earner that needed the help to buy a car, here’s how much you may owe in taxes on your “free” money:
- 10% (your income is between $0 and $8,025)= $450 goes back to Uncle Sam next April 15
- 15% ($8,025 and $32,550) = $675
- 25% ($32,550 and $78,850) = $1,125
- You pay sales tax on the vehicle price, which includes the $4500 check from the government. So you are paying sales tax on top of the Income Tax. At 8% that’s $360.
- It is possible that states that have state income taxes may count this as income too. Insert your tax rate here. Each state has different rules though. I live in Texas, no state income tax here!
- Are you a car dealer? Welcome to the last-minute notification that these rebates will be taxed.
So, if you make $50k a year and you sold a clunker, your $4500 gift is now a $1,125 tax bill, plus sales tax on the $360 sales tax (at 8%), plus whatever state income tax you may need to pay. Therefore, $4,500 – $1,125 – $360 = $3,015 – sales tax = transparency? Don’t forget to put that $1,125 in the bank for next April. I’m sure you still have it in the bank, right?
