The Volume Utah Taxpayer 34 JuJulyly 2009 2009 Number 7 Page 1 The Utah Taxpayer A Publication of the Utah Taxpayers Association 1578 West 1700 South♦Suite 201♦Salt Lake City, Utah 84104♦(801) 972-8814 July 2009 Articles 2009 Federal, State, and Local Tax Burden on 2009 Federal, State, and a Median-income Utah Family Local Taxes on a Mediam income Utah Family A median-income Utah household consisting of two parents and three children pays 24.2% of its income in direct federal, state, and local taxes, according to an analysis by the Utah Taxpayers Asso- My Corner – Iranian style ciation. A median-income Utah family with two parents and three children earns $63,074 in wages elections in Utah? and salary. Additionally, the family earned $5,474 in the form of employer-paid payroll taxes for a total income of $68,548. Highlights from the Taxes Now Conference The following chart illustrates the tax impact. These taxes do not include the taxes that businesses pay and pass The costs taxpayers pay on to their customers in because of UTOPIA Percent of Percent of the form of 2009 Taxes Amount Taxes Income RDAs: Corporate welfare higher prices, disguised as “economic to employees Social Security $7,821 47.1% 11.4% development” in the form of Sales tax 2,106 12.7% 3.1% reduced State income tax 1,967 11.9% 2.9% compensation, Medicare 1,829 11.0% 2.7% and to Property tax 1,347 8.1% 2.0% shareholders in Automobile taxes 922 5.6% 1.3% the form of Employment taxes 649 3.9% 0.9% reduced divi- dends and Excise taxes 306 1.8% 0.4% stock prices. Federal income tax (356) -2.1% -0.5% In this Association Staff Total $16,592 100.0% 24.2% example, one Howard Stephenson . Calculations by Utah Taxpayers Association based on data from Utah State Tax Commission, President parent works Internal Revenue Service, Bureau of Labor Statistics, Utah Department of Workforce Services, Royce Van Tassell . full-time and Governor’s Office of Planning and Budget, Utah Department of Transportation, Utah Associa- Vice President the other tion of Realtors. Andrew Stephenson. works part- Research Analyst time. Social Security and Medicare, employee and employer match: $9,650 Fallon Rudisill . .. Almost everyone who works must contribute to the Social Security and Medicare Funds. In 2009, Executive Secretary ordinary income up to $106,800 is subject to a 12.4% Social Security tax, half of which is paid by the Executive Committee employer and the other half is paid by the employee. Total ordinary income is also subject to a 2.9% Margo Provost . Medicare tax, split 50-50 between employer and employee. Chairman Even though employers pay 50% of Social Jack Towsley . Security and Medicare taxes, economists across Tax Amount Vice Chairman the spectrum agree that employees really pay this Social Security – employee share $3,911 John Ward. tax because employers reduce employee wages by Social Security – employer share $3,911 Secretary the amount of payroll taxes paid by the employer. Kathryn Hymas . Medicare – employee share $915 Therefore, employer-matched payroll taxes are Medicare – employer share $915 Treasurer treated as household taxes and as household Mark Buchi. .. Total Social Security and Medicare $9,650 income. As a result of including both employer Legislative Chair Maxwell Miller. and employee share of Social Security and Immediate Past Chair Medicare taxes as income, the effective tax rate is Tax H. Val Hafen . 14.2% of taxable base. Amount At Large State – 4.70% for most items $1,243 Sales Tax: $2,106 The Utah family spent $32,750 on purchases City – 1.0% $309 subject to state and local general sales taxes. In County – 0.25% $77 2009 the average sales tax rate in Utah will be Transit, Roads, Arts – 0.70% avg $180 about 6.65%. Salt Lake County’s rate will be Total General Sales Tax $1,810 6.85%, which consists of 4.70% state, 1.0% city, Visit Us at www.utahtaxpayers.org . The Utah Taxpayer July 2009 Page 2 0.25% county, 0.55% first “two quarters” mass transit, 0.10% arts, 0.25% third quarter mass transit. Some items are taxed at a lower rate. Starting in 2008, unprepared food will be taxed at 3.0% (1.75% state, 1.0% city, 0.25% county). Typically, residential electricity and natural gas will be taxed Food purchased at res- at 3.95% (State rate is reduced from 4.70% to 2.0%). taurants is subject to an Food purchased at restaurants is subject to an additional tax of 1.0% in most counties. Natural additional tax of 1.0% gas and electricity are subject to utility franchise tax of in most counties. up to 6%. Starting in 2008, telephone services will be Tax Amount subject to a 3.5% municipal telecommunications license Restaurant tax – 1.0% $34 tax (rate was reduced from 6% to 4% when cell phones Utility franchise tax – various $149 were subject to the tax and then reduced to 3.5%). Cable Municipal telecom. license tax $52 municipal franchise tax is 5% per federal law. Other telecom taxes $61 State Income Tax: $1,967 Total Misc. sales taxes $296 Tax rates for the state income tax are significantly Grand total sales taxes $2,106 lower than those for the federal income tax, but the Utah family pays more state income tax than federal income tax due to federal child tax credits and the new Making Work Pay tax credit. In tax year 2008, Utahns started paying state income tax under a new system with a single rate of 5% and with credits that phase out as income increases. For a married household, credits begin phasing out at 1.3 cents per dollar of adjusted gross income above $25,022 (estimated threshold for 2009). Adjusted Gross Income $63,074 Tax rates for the state 5% tax before credits 3,154 income tax are signifi- cantly lower than those Credits @ 6% for the federal income Itemized deductions excl state income tax 860 tax 75% of federal personal exemptions 821 Total before phase out 1,681 Credit phase out 495 Net credit 1,186 State $1,967 Income Tax (5% tax less net credit) Property Tax : $1,347 The most visible, and perhaps the most disliked, tax paid by a Utah family is the real property tax. The property tax is based on a taxable value which is 55% of the assessed market value for a primary residential property. The median market value of a Utah home in 2008 was $231,500. Various taxing entities are permitted to assess property taxes. School districts account for the greatest part, 56%, of the Utah family’s property tax bill. Counties, cities, and special service districts account for the other 44%. The The most visible, and statewide valuation-weighted nominal property Entity Rate Tax perhaps the most dis- tax rate in Utah is 0.010582. School District 0.005877 748 liked, tax paid by a The percent distribution of total statewide County 0.001877 239 Utah family is the real property tax. property tax revenues is slightly different than City 0.002058 262 the above numbers since special service districts Special Service District 0.000770 98 have overlapping tax bases and city tax bases do not cover the entire state. Total 0.010582 $1,37 Automobile Taxes: $922 A typical Utah family owns two cars and drives about 32,500 miles per year. In this Tax Amount example, one car is driven 13,915 miles and State gas tax $331 gets 21 miles per gallon. The second car is Federal gas tax $249 driven18,582 miles and gets 27 miles per Automobile Fee in Lieu $260 gallon. Utah automobiles are taxed as Air pollution/corridor preservation $26 personal property. In 1999, vehicles changed Registration fee $52 over from being taxed as a percent of their Tire recycling $4 market value to an age-based assessment. Total $922 Employment Taxes: $649 Employment taxes such as workers compensation and unemployment insurance are paid directly by employers, but economists Visit Us at www.utahtaxpayers.org . The Utah Taxpayer July 2009 Page 3 maintain that these taxes – just like the employer Social Security and Medicare match – are really paid by employees. Unemployment insurance tax rate varies from company to company depending on how many former employees of the company have filed for unemployment insurance. In 2009, a typical unemployment insurance rate is about 0.8% on a maximum wage base of $26,700. Workers compensation insurance premiums are technically not a tax since these premiums are paid to Most median income Tax private providers, but workers compensation Utah families with Amount insurance is required by law in most employment. three or more children Unemployment insurance $214 Unemployment insurance tax is not required for part- pay little or no federal Workers compensation $435 time workers. income tax, mainly due Total $649 Excise Taxes: $306 to the $1,000 per child Federal and state governments impose excise taxes tax credit on liquor, beer, and tobacco. They are easily overlooked since they are not listed separately from the selling price. Tax Amount Federal Income Tax: -$356 Liquor $127 Most median income Utah families with three or more Beer $22 children pay little or no federal income tax, mainly due to the Tobacco $157 $1,000 per child tax credit. This credit is in addition to the Total $306 $3,650 personal exemption for each household member. After itemized deductions and personal exemptions, the median income Utah family is in the 15% federal tax bracket (the first $16,700 in taxable income is taxed at 10%).