7 Sneaky Taxes That Could Blindside You This Season
You’ve already done your taxes, right? (If not, start here, with our easy guide to filing, because time is running out.)
But even if you’ve got them figured out—or have an excellent accountant doing them for you—you still might be in for some expensive surprises this season.
Granted, these picks don’t apply to everyone—which is exactly why they’re so sneaky. From brand-new measures like the NIIT to longstanding gotchas like the AMT, you’ll want to be aware of these long before you file.
1. The Medicare Tax
Let’s start with the shiny new Medicare tax, which was instituted as part of the Affordable Care Act (a.k.a. Obamacare). It only affects people with incomes over a certain threshold … but if you are one of those people, you might be surprised to see a few hundred dollars tacked on your tax bill.
Who May Be Subject: If you make at least $200,000 individually, $250,000 filing jointly with your spouse or $125,000 filing separately from your spouse, you’ll be assessed a .9% tax on any income beyond that.
What You Should Know: The thing is, according to Boyce, you can be taxed two ways: If you make over $200,000 individually, you may not notice, as your employer takes the tax out of your paycheck throughout the year.
Or, there’s another option. “If Jim is married and made $190,000 in 2013, and his spouse Kim made $150,000, neither made enough to have the tax taken out of their paycheck all along,” illustrates Boyce. “Instead, because they make $340,000 together, they will get hit with the whole tax at the end of the year. As a result, the couple will have to pay an additional tax on the $90,000 over $250,000, which would be $810.” That, you’ll notice.
2. The Jock Tax
This tax, levied by 22 individual states on high-earning traveling workers, is called the jock tax because its most high-profile targets are famous athletes like basketball and football players. Technically, it is the most common form of what’s called “nexus,” which taxes income earned out-of-state. So, for example, Seahawks and Broncos players who traveled to New Jersey to play the Super Bowl will owe the state taxes on a percentage of their income when they file their 2014 tax return—because New Jersey is where they earned it.
Who May Be Subject: Athletes are targeted by this tax because both their salaries and schedules are made public, but states have also tried to target traveling musicians, lawyers and bankers by looking up their travel records. Even if you aren’t a famous athlete or musician, if you travel for work, you should be on the lookout for this tax.
What You Should Know: ”The minute you spend one hour in a state on business, you could have, depending in the state rule, nexus there,” explains Rosen. “Every state has a different law.” And even if you don’t report your out-of-state income, you might not skirt this tax—other people could be reporting for you. “If you work for someone, they could write on your W-2 that you are in different states, that you go to different offices. If you’re self-employed, you might get a 1099 that is filed in that state office,” he says. “Or at a trade show, state officials may come up to you and say, ‘Are you registered to do business in this state?’ If you don’t report, your accountant is going to have to do a lot more work.” If you cross state borders in your work, inform your accountant of all earnings in other states—or at the very least, where you’ve traveled for business and what you were doing there. And yes, if this tax applies to you … you’ll want an accountant.
3. Local Taxes
Depending on where you live, you may pay not only federal and state taxes but county and city taxes too.
Who May Be Subject: This tax could apply to anyone, but it will probably be most impactful on residents of larger cities. See specific examples below.
What You Should Know: New York City is the most famous for having sky-high taxes just for living in its borders. (As this couple lamented.) But high local taxes pop up across the Northeast and Midwest in densely populated areas such as Detroit; Wilmington, Delaware; and Portland, Maine. “Every city is different in what they charge and how they do it,” says Rosen, “but rates are around 3% to 4%.”