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Hidden Federal Taxes You Pay

Updated for Tax Year 2014


OVERVIEW

Federal taxes are attached to many of the items we purchase on a regular basis. The reason we don't notice or consider these taxes is that they're hidden in the purchase price of the item we're buying.


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When we think of federal taxes, the first things that come to mind are the taxes taken out of our paychecks and the income tax forms we fill out each year. However, we actually pay in a lot more to the federal government than what is calculated on our annual returns through something called excise taxes.

Emily Black, an IRS business services agent, states in 2011, excise tax collections comprised just two percent of all IRS revenues, but “to put things in perspective, that’s over $49 billion in excise tax collections.” Federal taxes are attached to many of the items we purchase on a regular – sometimes even daily – basis. The reason we don’t notice or consider these taxes is that they're hidden in the purchase price of the item we’re buying.

Air transportation taxes

As if air fares and baggage fees weren’t high enough, you’ll also get hit with federal air transportation taxes when you buy flight tickets. In most cases, airline carriers advertise base fares that do not include the extra federal taxes. When you finalize your purchase, a federal tax of 7.5 percent, plus a segment fee of $3.90 each way, is tacked on to your final cost.

Alcohol taxes

The federal tax rates for beer, wine and spirits vary depending on the type of alcohol you buy and the alcohol content of the beverage. For beer, you’ll pay the federal government between 2 and 5 cents per can, or 12 to 30 cents per six pack. The tax per 750 ml bottle of wine ranges from 4 cents for hard ciders to 67 cents for naturally sparkling varieties. Spirits or hard liquors have the highest liquor tax because of their high alcohol content. An average 80-proof 750 ml bottle of hard liquor will cost you $2.14 in federal tax.

Tobacco product tax

If you smoke or chew tobacco, a portion of your purchase price is devoted to federal tax. A standard pack of 20 cigarettes or 20 small cigars has a $1.01 federal tax, a large cigar has a 40 cent tax and a one-ounce tin of chewing tobacco has a three cent tax. For loose pipe tobacco, you'll pay an extra 17.6 cents per 1-ounce pouch.

Firearms and ammunition tax

Whether you hunt for sport, carry a concealed weapon or just own personal firearms, you’ll pay a federal tax on the sales price of the gun and any ammunition. For the purchase of pistols and revolvers, the federal rate is 10 percent, and for all other firearms and ammunition, the rate is 11 percent. These taxes are in addition to any state and local sales taxes.

Fuel tax

When you fuel up, a portion of the price goes toward federal taxes. The amount of tax depends on the type of gas you buy. For regular unleaded, you’ll pay 18.4 cents per gallon; for natural gas fuels, like E-85, you’ll pay 11.4 cents per gallon; and for diesel you’ll pay 24.4 cents per gallon. These taxes are included in the price you see on gas station signs, so it’s easy to miss this hidden tax.

Gas guzzler tax

Aside from saving money on gasoline, one more reason to drive a fuel-efficient vehicle is to avoid the gas guzzler tax. The federal government imposes this tax on the purchase of new cars based on their miles-per-gallon fuel efficiency. If you buy a vehicle that gets better than 22.5 miles to the gallon, you won't pay the gas guzzler tax.

However, if you get 21.5 to 22.5 miles a gallon, you’ll pay an extra $1,000 for this tax; and up to $7,700 if your vehicle gets worse than 12.5 miles to the gallon. This tax applies only to new car purchases, so you won't pay it when you buy a used vehicle, regardless of its fuel efficiency.

Cell phone and landline phone taxes

The federal government charges a communications tax to your phone bill for local use only. Prior to 2006, the government also imposed the tax on long distance use, but it was determined that taxing long distance service was no longer necessary. This tax adds 3 percent of your local phone bill charges to your monthly bill.

Indoor tanning tax

As of July, 2010, all indoor tanning salons are required to pay an excise tax under the Affordable Care Act. If you use indoor tanning services, you’ll pay an extra 10 percent of the service price to cover this tax. This tax is limited specifically to indoor tanning services. You won’t be taxed for spray tans, tanning lotions or accelerators, or for gym memberships that include use of indoor tanning facilities.

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.

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