Cash for Clunkers Tax Rules

What are the Cash for Clunkers tax rules? Do you have to pay federal income tax on the Cash for Clunkers program?

There seems to be a lot of confusion around the tax rules for the Cash for Clunkers program which ended this week. One of the tax rules currently being debated is whether or not you need to pay federal income tax on the value of the cash for clunkers program voucher.

Here is the federal income tax rule from the official Cash for Clunkers government website:

(h) Exclusion of Vouchers From Income
(1) FOR PURPOSES OF ALL FEDERAL AND STATE PROGRAMS- A voucher issued under this program or any payment made for such a voucher pursuant to subsection (a)(3) shall not be regarded as income and shall not be regarded as a resource for the month of receipt of the voucher and the following 12 months, for purposes of determining the eligibility of the recipient of the voucher (or the recipient’s spouse or other family or household members) for benefits or assistance, or the amount or extent of benefits or assistance, under any Federal or State program.

(2) FOR PURPOSES OF TAXATION- A voucher issued under the program or any payment made for such a voucher pursuant to subsection (a)(3) shall not be considered as gross income of the purchaser of a vehicle for purposes of the Internal Revenue Code of 1986.

So there’s your answer. The voucher is not subject to federal income tax.

For more information, including state tax information, see Cash for Clunkers Tax Rules and the Cash for Clunkers Business Tax Rules.


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State Sales Tax Holidays

State sales tax holidays are here! If you’re lucky, your state will encourage you to shop on specific days this summer and fall to avoid paying sales tax. Sales tax holidays vary by state. Here is an overview of the dates and savings for each state:

Alabama

  • Date: August 7-9
  • Savings: 4%

Connecticut

  • Date: August 16-22
  • Savings: 6%

Georgia

  • Date: July 30 – August 2
  • Savings: 4%

Iowa

  • Date: August 7-8
  • Savings: 6%

Louisiana

  • Date: August 8-9
  • Savings: 4%

Mississippi

  • Date: July 31 – August 1
  • Savings: 7%

Missouri

  • Date: August 7-9
  • Savings: 4.225%

New Mexico

  • Date: August 7-9
  • Savings: 5% to 8.5625%

North Carolina

  • Date: August 7-9
  • Savings: 7%

Oklahoma

  • Date: August 7-9
  • Savings: 4.5%

South Carolina

  • Date: August 7-9
  • Savings: 6%

Tennessee

  • Date: August 7-9
  • Savings: 8.5% to 9.75%

Texas

  • Date: August 21-23
  • Savings: 6.25% to 8.25%

Vermont

  • Date: August 22
  • Savings: 6%

Virginia

  • Date: August 7-9
  • Savings: 5%

West Virginia

  • Date: September 1 – November 30
  • Savings: 6%

Source: Guide to State Sales-Tax Holidays 2009


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2009 Tax Brackets

The 2009 tax brackets are out. Don’t forget tax rates are marginal, so you’ll pay taxes at each rate until you reach your taxable income level.

For example, a single filer who has $25,000 of taxable income will pay 10% on the first $8,350 ($835) and 15% on the remaining $16,650 ($2,497.50). The total tax will be $3332.50, or an average tax rate of 13.3%.

2009 Tax Brackets

 
Tax Rate Single Married Filing Joint Married Filing Separate Head of Household
10% Up to $8,350 Up to $16,700 Up to $8,350 Up to $11,950
15% $8,351 – $33,950 $16,701 – $67,900 $8,351 – $33,950 $11,951 – $45,500
25% $33,951 – $82,250 $67,901 – $137,050 $33,951 – $68,525 $45,501 – $117,450
28% $82,251 – $171,550 $137,051 – $208,850 $68,526 – $104,425 $117,451 – $190,200
33% $171,551 – $372,950 $208,851 – $372,950 $104,426 – $186,475 $190,201 – $372,950
35% Over $372,950 Over $372,950 Over $186,475 Over $372,950

It’s important to note that the Make Working Pay Tax Credit will reduce some of the the tax due in the 10% tax bracket.


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Tax Day is Here!

Happy Tax Day! Every year on April 15 there are plenty of last minute filers scrambling to get their taxes done. If you want to get your taxes done quickly, check out 6 Free E-File Options.

Tax Extensions

If you are in the same situation, but your return is not going to get done by the end of the day, be sure to file an extension.

Estimated Tax Payments

In addition to your 2008 return deadline today, if you are self employed, you must also make your first 2009 estimated tax payment.

For a complete listing of 2009 tax due dates, see the 2009 Tax Calendar.


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2008 Tax Brackets

Want to know how much you’ll be paying in taxes this year? Here are the 2008 tax rates.

Tax rates are marginal, so you’ll pay taxes at each rate until you reach your taxable income level.

For example, a single filer who has $25,000 of taxable income will pay 10% on the first $8,025 ($802.50) and 15% on the remaining $16,975 ($2,546). The total tax will be $3349, or an average tax rate of 13.4%.

2008 Tax Rates

 
Tax Rate Single Married Filing Joint Married Filing Separate Head of Household
10% Up to $8,025 Up to $16,050 Up to $8,025 Up to $11,450
15% $8,026 – $32,550 $16,051 – $65,100 $8,026 – $32,550 $11,451 – $43,650
25% $32,551 – $78,850 $65,101 – $131,450 $32,551 – $65,725 $43,651 – $112,650
28% $78,851 – $164,550 $131,451 – $200,300 $65,726 – $100,150 $112,651 – $182,400
33% $164,551 – $357,700 $200,301 – $357,700 $100,151 – $178,850 $182,401 – $357,700
35% Over $357,700 Over $357,700 Over $178,850 Over $357,700

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