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Taxes on Holiday Air Travel

Tax Foundation - Mon, 2013-12-30 08:15

As anyone who’s ever bought an airplane ticket home for the holidays knows, taxes and fees on air travel can be substantial. We’ve written before on how much gas taxes and tolls can cost for holiday travel on roads, but taking to the skies is little better.

For my own travel home for Christmas, I paid $48.44 in taxes on a $229.76 ticket: that’s a 21 percent tax rate. But, according to Airlines for America, an airline industry group, federal airline taxes for a ticket totaling $300 average $61.49. That’s 20 percent of the ticket price, or the equivalent of a 26 percent tax.

Airline Taxes, Example Round Trip Ticket from DC to Kentucky

Cost

Total

Rate

Base Ticket Price

$229.76

 

Passenger Ticket Tax

$17.24

7.5% of base fare

Domestic Flight Segment Tax

$11.70

$3.90 per flight segment

September 11th Security Fee

$7.50

$2.50 per enplanement

Passenger Facility Charges

$12.00*

Varies by airport; up to $4.50

Total Taxes and Fees

$48.44

21.08%

*$3 for Charlotte airport, $4.50 paid twice for DCA arriving and departing

The list of federal airline taxes is long: 17 different taxes and fees, in fact. Some of these taxes and fees, like the Passenger Facility Charges (PFCs) that airports levy, can be seen as “user fees,” wherein airports bill passengers for the cost of expanding airport facilities and services. On my flight, I paid PFCs in Charlotte, and both going and coming at DCA in Virginia.

The passenger ticket tax, which works like a 7.5 percent sales tax on tickets, and the domestic flight segment tax, which is a $3.90 fee on each leg of a journey, both go to the Airport and Airway Trust Fund, which pays for the Federal Aviation Administration (FAA). These two taxes can also be seen as indirect user fees. The FAA oversees air traffic control, which is essential for air travel. However, the FAA is also a major regulator of the airline industry, which contributes to higher costs: so these aren’t “pure” user fees, any more than taxes that pay for a traffic cop’s salary is a “user fee” for highways.

The September 11th Security Fee (9/11 Fee) I paid, which will double to $5 per enplanement in 2014, is also only dubiously-defined as a user fee. Revenues raised from the 9/11 Fee fund Transportation Security Administration operations, especially security checkpoints at airports. On the one hand, it is true that passengers “use” these security services. On the other hand, probably very few of us wake up in the morning hoping we get to pay $2.50 (let alone $5) to walk through a full-body scanner and then get frisked.

There are even more taxes on international flights, and numerous taxes are applied to airline fuel which are baked into the price of the ticket. Thus, with airline taxes so high and set to go higher, taxes and fees represent a major share of air travel costs. Policymakers would do well to look into the “services” being provided, and decide if they are worth the cost, before they raise airline taxes and fees further.

Categories: Tax news

IRS Crackdown on Automatic Gratuities Takes Effect January 1

Tax Foundation - Mon, 2013-12-30 08:00

“Automatic gratuities” added onto the restaurant bills of large parties will be treated as wages and not tips starting January 1, 2014, as a suspended IRS ruling finally takes effect. Many restaurants add these charges to groups of 5 or 6 or 8 or more to prevent their servers from being undertipped when handling large parties.

Under the IRS ruling, Rev. Ruling 2012-18, a sharper distinction is drawn between tips and service charges. Both are taxable but tips are reported and cashed out that day. Under the new rules, to be a tip:

(1) the payment must be made free from compulsion;

(2) the customer must have the unrestricted right to determine the amount;

(3) the payment should not be the subject of negotiation or dictated by employer policy; and

(4) generally, the customer has the right to determine who receives the payment.

Automatic gratuities don’t meet these criteria, so they would be classified as service charges. Employers would have to cycle these charges through their payroll system to distribute to servers, delaying payment by up to two weeks, and factor them into hourly wage rates.

The likely result is that restaurants will discontinue automatic gratuities for large parties, to avoid additional compliance costs and to allow employees to take their tips home on the day they get them. Getting servers to work large parties will probably be harder.

The IRS views this as the latest step in their effort to crack down on underreported tip income although previous enforcement efforts (employee and employer reporting requirements and high-profile investigations) and the shift from cash to credit for most payments has ended this evasion for the most part. To the IRS, it’s just a clarification “in the best interest of tax administration.” But one that will make life a little bit harder for restaurants and their waitstaff.

Categories: Tax news

rules for deducting last-minute charitable gifts - Inman.com

Google IRS Federal Income Tax - Mon, 2013-12-30 03:40

rules for deducting last-minute charitable gifts
Inman.com
If, for example, the marginal tax rate (top tax bracket) is 25 percent, each dollar you donate to charity in 2013 will reduce your 2013 federal income taxes by 25 cents. If your state has income ... 1, 2014, and make sure to follow IRS rules. The basic ...

Categories: Tax news

Wealthy avoid taxes by moving assets to no-tax states - STLtoday.com

Google IRS Federal Income Tax - Sat, 2013-12-28 23:01

Wealthy avoid taxes by moving assets to no-tax states
STLtoday.com
Using a Delaware Incomplete Non-Grantor Trust, or DING, wealthy residents of high-tax states take advantage of vague or conflicting definitions in state and federal laws. They can move assets just far enough out of their control so they ... “The only ...

Categories: Tax news

Bailout Act Includes Tax Breaks for the Little Guy

SmartMoney.com - Tax Matters - Wed, 2008-10-08 12:27
The unpopular Fed bailout act does offer some nice tax breaks.
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A Smart Tax Move for Short-Term Investors

SmartMoney.com - Tax Matters - Wed, 2008-10-01 11:30
Reduce the tax hit on short-term bets by investing in broad-based equity index options.
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Refundable AMT Credit Could Mean Cash Back for You

SmartMoney.com - Tax Matters - Wed, 2008-09-24 09:49
If you exercised incentive stock options and got socked by the AMT, here's some relief.
Categories: Tax news

Borrowing From Your IRA

SmartMoney.com - Tax Matters - Thu, 2008-09-18 08:16
It can be a source for an interest-free short-term loan -- or a bad idea if you do it wrong.
Categories: Tax news

Why Our @*$! Tax Code Is So Confusing

SmartMoney.com - Tax Matters - Wed, 2008-09-10 08:30
I'm a CPA and our stupid tax code even drives me nuts. Politicians, are you listening?
Categories: Tax news

Which Cars Qualify for Alternative Fuel Credit?

SmartMoney.com - Tax Matters - Thu, 2008-09-04 06:34
Here's a list of which vehicles still qualify for the juicy tax credit of up to $3,000.
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IRAs Are Better Than Ever as Retirement Tool

SmartMoney.com - Tax Matters - Wed, 2008-08-27 07:03
More folks are eligible -- and the contribution limits are higher. So get on this.
Categories: Tax news

Late Payments of Estimated Taxes Can Be Smart Move

SmartMoney.com - Tax Matters - Wed, 2008-08-20 10:27
If you pay estimated taxes, delaying your payments is remarkably painless.
Categories: Tax news

A Sneaky New Twist on the Wash-Sale Rules

SmartMoney.com - Tax Matters - Thu, 2008-08-07 07:16
The IRS says IRA and other transactions can now trigger the dreaded wash-sale rule.
Categories: Tax news

3 Brand-New Tax Changes You Need to Know About

SmartMoney.com - Tax Matters - Tue, 2008-08-05 11:00
New legislation has changes that will affect many homeowners.
Categories: Tax news
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