Spring 2021 Quarterly Newsletter
Author: Marty Moore, CFP®
The first income tax in the United States came about with the Revenue Act of 1861. A flat 3% tax on income above $800 was used to fund the Civil War and then repealed 11 years later.
In the 1940s, the government needed a steady flow of cash to fund WWII. It passed the Current Tax Payment Act of 1943, which required that companies withhold income taxes for the first time from employees’ paychecks. Before this (from 1916 to 1943), Americans paid income taxes quarterly or annually.
Who pays the most income tax nowadays? According to the Tax Foundation, based on the latest IRS data from 2018:
- The top 50% of income earners (AGI of $43,614 or higher) paid 97.1% of all federal taxes.
- The top 25% (AGI of $87,004) paid 86.9% of all federal taxes.
- The top 1% (AGI of $540,009) paid 40.1% of federal taxes.
- About 42% of tax filers are expected to owe no individual income tax for 2020.
Interesting, Crazy and Weird
Delaware has a low 8.7% flat tax on corporations, likely the reason about half of all publicly traded companies in the country consider it home. The single address 1209 North Orange Street in Wilmington, DE is the legal address of more than 300,000 companies.
The IRS Tapes: Who’ll Buy My Memories?
This is the thirty-ninth studio album by American country and western singer Willie Nelson. The album, featuring only Nelson and his guitar, was released by Sony in 1992 to pay Nelson’s tax debt with the IRS. The album generated $3.6 million for the IRS, that requested another $9 million from Nelson to satisfy his debts.
States sometimes impose crazy taxes. New York places a special tax on prepared foods. Sliced bagels are taxed once as food and again as prepared food, thus creating a sliced bagel tax. States like Iowa, Pennsylvania and New Jersey exempt pumpkins from a sales tax, but only if they will be eaten and not carved. Don’t ask me how they figured that one out…
Not So Crazy
In New Mexico, people over 100 years old are tax-exempt, but only if they are not dependents. Shouldn’t every state do this?
Astronaut Jack Swigert, the command module pilot for Apollo 13, got the assignment at the last minute because of health concerns surrounding another astronaut. In the rush, Swigert neglected to file his taxes. When he realized his mistake (while orbiting the globe!), he had to ask mission control to help him file an extension. Amazingly, this happened again to astronaut Leroy Chiao who in 2005 was commanding the 10th expedition to the International Space Station.
Don’t Be A Tattletale
I can still hear my mother’s rebuke.
But the IRS will reward you. The agency’s Whistleblowers Office pays money to blow the whistle on people who fail to pay their federal income taxes. The reward is often based on a percentage of what was collected in taxes, penalties and interest, but it can total up to a maximum of $10 million or 30% of what was collected.
Sometimes it really does pay to be a snitch.
This article was featured in our Spring 2021 Quarterly Newsletter available here:Quarterly Newsletter, Tax Planning