The Best Kept Secrets: 7 Hidden Taxes Unveiled and Tackled

Did you know federal income taxes represent less than 50% of your tax burden? You pay more to the federal government through hidden taxes.

According to the policy think tank The Institute for Policy Innovation, hidden taxes represent more than 55% of the total tax burden of US taxpayers. In 2001 alone, these taxes amounted to at least $657.5 billion — translating to over $2,600 per American.

The federal government levies taxes on a litany of products and services ranging from fuel to firearms to air travel expenses. But unlike sales taxes that appear on a cash register receipt, these taxes are concealed in the price of the item you buy. You don’t notice these taxes despite paying them almost daily.

Here’s a list of seven hidden taxes you might need to learn.

1. Air transportation taxes

Beyond the already high airfares and baggage fees, airline ticket purchases also incur federal air transportation taxes. Typically, airline carriers advertise base fares that exclude additional federal taxes. Upon finalizing your purchase, a ticket tax of 7.5%, a $4.80 segment fee, and a $5.60 September 11 fee are added to your total cost. 

How to save money: 

• Use airline miles or credit card points when booking a ticket.
• Plan your travel in the offseason, when the price is lower.

2. Alcohol taxes

These tax rates vary depending on the type of alcohol you purchase and its alcohol content. For instance, taxes on a beer can range between 2 and 5 cents. And an average 80-proof 750 ml bottle of hard liquor incurs a federal tax of $2.14.

How to save money:

• Go for low-alcohol liquor.

3. Firearms and ammunition tax

The federal government imposes a 10% excise tax on the purchase of pistols and revolvers and an 11% tax on other firearms and ammunition. It’s important to note that these taxes are in addition to state and local sales taxes.

How to save money:

• Plan your purchase during tax-free shopping days hosted by various states in the US.

4. Fuel tax

The amount of fuel tax incurred depends on the type of gas you buy. For instance, it’s 18.3 cents per gallon on gasoline and 24.3 cents on diesel fuel. Additionally, there is a Leaking Underground Storage Tank fee of 0.1 cents per gallon on both fuels.

How to save money:

• Consider buying electric vehicles.
• Try to carpool and consolidate trips.
• Use gas credit cards that provide bonus rewards or extra cash back for spending at gas stations.

5. Gas guzzler tax

This tax is imposed on the purchase of new cars that fail to meet the federal fuel efficiency standards. These taxes apply only to passenger cars. Trucks, minivans, and SUVs are not subjected to this tax.

Cars that fall just below 22.5 mpg are taxed at $1,000, while vehicles that get less than 12.5 mpg are taxed at $7,700, the top of the range.

How to save money:

• Consider purchasing fuel-efficient vehicles.
• This tax only applies to new car purchases; buying a used vehicle, regardless of fuel efficiency, exempts you from this tax.

6. Telephone taxes

The federal government imposes a 3% communications tax on your monthly phone bill for local use. Note that these taxes don’t apply to bundled services like prepaid calling cards, voice-over-internet protocol (VOIP) services, and mobile phone contracts that don’t differentiate between local and long-distance calls within the US.

How to save money:

• Consider using bundled telephone services.

7. Tobacco product tax

A portion of your purchase price of cigarettes, small cigars, and tobacco products is devoted to federal tax. Typically, a standard pack of 20 cigarettes or 20 small cigars incurs a $1.01 federal tax, while a large cigar has a 40-cent surcharge. A one-ounce tin of chewing tobacco carries a three-cent tax.

How to save money:

• Go for healthier alternatives like nicotine gum and lozenges.
• Consider reducing your consumption of cigarettes and tobacco products.

The final word

Navigating hidden taxes requires a keen awareness of the various forms they can take. Use this guide to educate yourself on the everyday products and services subjected to hidden taxes and their potential cost implications. 

Additionally, ensure that you stay informed about tax regulation changes and seek vendor transparency. Doing so will empower you to make more informed purchasing decisions and better manage your overall tax burden.

Want to know more about finance and accounting? Since 2006, Escalon has helped thousands of startups get off the ground with our back-office solutions for accounting, bookkeeping, taxes, HR, payroll, insurance, and recruiting — and we can help yours, too. Talk to an expert today. 

This material has been prepared for informational purposes only. Escalon and its affiliates are not providing tax, legal or accounting advice in this article. If you would like to engage with Escalon, please contact us here.