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9 Types of Taxes | A Comprehensive List
Every American Citizen’s Duty
Part of every American’s civic duty involves the proper declaration and payment of different types of taxes.
Taxpayers usually owe their taxes either to the federal or state government. In some cases, the businesses collect them as part of the purchase of goods or services.
There are many different kinds of taxes levied in the country, and nine of them are the most common.
1. Sales Tax
Let’s begin with the sales tax.
Sales tax is a consumption tax. This means it takes effect upon the purchase of goods and services.
One of the key elements here is identifying who is responsible for paying it. When it comes to sales tax, the duty is on the buyer or the consumer, but the business collects and remits it to the government.
To be able to do that, however, the companies part of the supply chain need to provide the proper documentation to the IRS. An example is the resale certificate.
Each U.S. state collects sales taxes. In computing sales tax, you multiply the amount of the purchase with the tax rate applicable to each state. Use these sales tax calculators to make it easier to figure out the numbers.
Most states impose a statewide sales tax rate. At least five states (Alaska, Delaware, Montana, New Hampshire, and Oregon) leave it to cities and municipalities to determine their respective local tax rates.
It’s also possible for sales taxes to overlap. It happens when the state and their cities or counties have different tax rates.
Sales tax is also different from the use tax, which can be complicated. In its tax definition, it is a type of sales tax imposed on goods and services the person wants to use in the state. These items come from outside the state’s jurisdiction that didn’t levy the same tax.
2. Sin Tax
Another common type of tax is a sin tax. It is a kind of excise tax, which is a form of indirect tax.
An indirect tax means the responsibility of paying the tax liability lies on the manufacturer or wholesaler, but these entities often pass the tax burden to the consumers by including it in the product’s price.
An excise tax, meanwhile, is a type of tax levied on specific goods. It can be ad valorem taxes or specific or fixed taxes:
- Ad valorem taxes mean the actual excise tax can vary since it’s according to a percentage.
- Fixed or specific taxes are flat fees added to the cost of the goods.
Both the federal and state governments subject the purchase of “vice” items like tobacco and alcohol to an additional sin tax. They can also levy a tax on the same item such as cigarettes and gambling winnings.
Ideally, the collection of sin tax should discourage most people from patronizing these products considered dangerous to health. This tax accounts for large revenues in some U.S. states, such as Nevada, Rhode Island, and Delaware.
3. Travel Tax
Before people start packing their bags, they need to be aware of one thing: local governments can also collect a travel tax. This can then increase your spending for your needs such as lodging and car rentals.
Travel taxes can come in different forms. One of the common types of travel taxes is lodging.
It is in addition to the sales tax the state collects. This tax can also be a fixed amount or a percentage.
For example, Georgia charges extra $5 per room as lodging tax. Idaho levies 2%.
There are also cases when the state can forgo sales tax but charges users with a lodging tax. An example is Delaware.
Those who like to use car rentals should also consider the applicable taxes.
Like lodging taxes, it can be a percentage or a fixed or flat fee. In Minnesota’s case, it levies both types.
So far, there are 22 states that impose a tax for lodging accommodations and 38 states that collect tax on rented vehicles.
4. Capital Gains Tax
All financial gains from earnings from investments have corresponding capital gains taxes. They also include taxes from dividends and interests accumulated from bank accounts.
The capital gains tax rate depends on the investors’ tax bracket and the duration of the investment.
In the United States, the government imposes taxes on short-term capital gains at the same rate as income tax and on long-term capital gains at a lower rate.
5. Inheritance/Estate Tax
The inheritance/estate tax refers to the tax paid on the transfer of properties from a deceased person to their heirs. The heirs who will benefit from the transfer of the property pay this tax to the government.
While the federal government imposes estate taxes, most states also implement certain levels of these taxes. The American Taxpayer Relief Act of 2012 imposed a maximum tax rate of 40% for 2013 and beyond.
Estate taxes can be a significant tax burden to the bereaved. That’s why the government also introduces an exemption amount.
It is now about $10 million per person throughout their lifetime. They can also use it to claim exclusions for the gift and generation-skipping transfer (GST) taxes.
In other words, unless the deceased has vast wealth, there’s a good chance the heirs don’t need to pay any estate tax at all.
RELATED: 10 Weirdest US Taxes
6. Income Tax
All taxpayers, regardless of their work employment status, need to pay tax for the personal income they earn. They need to declare it through their income tax return.
The amount depends on the taxpayer’s income status and amount of taxable income. At the federal level, the Internal Revenue Service (IRS) identified seven income tax brackets.
Almost all states have provisions for separate state income tax declarations. The exceptions are Texas, Florida, Nevada, Washington, Wyoming, South Dakota, and Alaska.
They also dictate different sets of income tax rates (depending on their local tax laws).
7. Value-Added Tax
The value-added tax (or simply VAT) is a kind of consumption tax collected based on the value of a product at every stage of its supply or production chain.
A lot of people tend to confuse it with sales tax. The significant difference is the point of collection.
In sales tax, a consumer pays it only at the end of the supply chain. The government collects VAT in every stage of the production or supply chain.
In other words, the manufacturer down to the retailer may have to pay it. In many cases, though, these entities can also pass the costs they paid to the consumers.
VAT may be one of the most common types of taxes. More than a hundred countries have it as well (except Macau).
It is also the most difficult to understand. In hindsight, the user pays VAT on the product cost less the raw materials that already paid tax.
It is not according to the income of the manufacturer or retailer. It is also levied on stages where the user added value into the product.
Not all states implement VAT. In fact, among the states, only Michigan taxed a form of VAT called the single business tax. It later replaced this with the Michigan business tax.
Meanwhile, Puerto Rico has been imposing a 10.5% VAT since 2006.
8. Payroll Tax
The federal government assesses the payroll taxes of each worker. In paying these taxes, either the employers deduct certain amounts from the employees’ salary (withholding tax), or the employees pay them directly to the government.
Some of the types of taxes under payroll are FICA taxes. These are taxes levied on both the employer and the employee to cover insurance taxes. These include Medicare taxes, which are 1.45%, and Social Security taxes at 6.2%.
Payroll taxes may also include contributions to disability, survivor, and unemployment benefits. Failure to remit payroll taxes on time and accurately can result in a penalty ranging from 2% to 10%.
9. Property Tax
Taxpayers pay property taxes on real estate or personal properties. Local governments collect these taxes as a source of revenue.
In computing property taxes, the government multiplies the fair market value of the property with the tax rate applicable to a certain city or municipality. Property taxes imposed by local governments range from 0.70% to 3.6%.
A non-payment of the property tax may result in a lien, which can decrease a person’s chances of selling the home or land fast. Taxpayers, though, can also negotiate the rate as well as dispute it.
They can also claim property tax as part of their itemized deductions, which can then reduce their federal income tax.
To be eligible, they need to meet certain requirements. For example, their itemized deductions should be more than their standard deductions.
There’s also a combined tax limit of $10,000 for both property and income taxes, according to the new law.
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It is everyone’s responsibility to understand the different types of taxes as mandated by the IRS. There are already many sources of information, including Tax Relief Center. Otherwise, people can end up facing severe penalties for missing out on or delaying tax declarations and payments.
Are there other types of taxes you usually pay or declare to the government? Share them with us in the comments below.
Editor’s Note: This post was originally published on March 2, 2018, and has been updated for quality and relevancy.