All the other taxes you pay - Tax Tip of the Week

...Continuing last week's discussionIn the last two weeks we have discussed your federal income tax rates and federal capital gain taxes.This week we are going to discuss all of the other taxes that fly out of your pocket.FICAThis is the Social Security and Medicare taxes you pay.  If you are an employee, these taxes are withheld from your paychecks and you don’t report them on your tax return.  However, it is a 7.65% tax obligation.  If you are self-employed, you do pay these taxes on your tax return and since you are paying both the employee and the employer portion of the tax, your rate is 15.3%.Tax Tip Alert: For 2009, earnings up to $106,800 are subject to Social Security tax.  There is no maximum earnings cap on Medicare taxes.  As efforts must be made (someday hopefully) to keep Social Security and Medicare solvent, we expect the Social Security cap will increase substantially or possibly even be eliminated over the next several years.STATE INCOME TAXLike the federal income tax brackets, Ohio also has a progressive income tax rate that roughly follows the federal tax brackets.  The range for 2009 is .618% - 6.24%.CITY INCOME TAXMost municipalities around the greater Dayton area have a city income tax.  You pay city taxes first where your job or business is located.  You may or may not also have a city tax obligation to the city in which you live.  City income taxes in this area range from 1%- 2.5%.SCHOOL DISTRICT (SD) INCOME TAXCurrently, there are only a handful of school districts in this area that have an income tax.  You pay this tax based upon the school district in which you reside.  This tax ranges from .5% -1%.Tax Tip Alert: As school districts continue to look for funding beyond relying on property taxes, we expect more districts will try to get an income tax implemented.Example:Let’s consider a self-employed individual whose income places them in the highest federal and state income brackets.  Let’s then have this taxpayer live and/or work in the highest taxing city and school district and see what their tax liability would be:35% Fed tax + 15.3% SS tax + 6.24% OH tax + 2.5% city tax + 1% SD tax = 60.04%And this is only the taxes that appear on a tax return!  It doesn’t include sales taxes, property taxes or the many hidden excise taxes that are paid.Questions about your tax status? In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504. Or visit www.bradstreetcpas.com....until next week.