January Summary – $5188 Paid

Well, the first month of the year is over. Amazing!

In the first month, we paid $5188 in taxes out of $16,469 in income. There was another $120 of interest income, but it was untaxed. This is a 31.5% effective tax rate. I suppose it would be slightly higher if I counted the employer side of social security and medicare. On the other hand, it might be slightly lower if I counted the untaxed employer contribution toward my retirement and health-care benefits as income. There are many ways to count this stuff, and I’d welcome any thoughts on how I should be counting this.

We have classified our taxes into various categories, including (1) federal, (2) state, (3) local (e.g., municipal franchise fees for cable TV and cell phone taxes), (4) sales, and (5) gasoline (federal and state). Out of the taxes paid, sales tax accounted for a measly 3.5%. Federal was the big winner with 72.0% of taxes going to “them.” The state took 23.1% of the pie. The other categories sucked up the balance.

See you in February!

Taxes Filed for 2009

To prove my point about how I do not expect 2010 taxes filed in 2011 to impact this study much, I present our results from tax year 2009. Federal taxes were overpaid to the tune of $900. State taxes were underpaid by about $600. So, it was only about a $300 overpayment. Next year it might be closer to a $1000 overpayment, since CA is taking more out of our paychecks all year long.

Sunday Summary – $3571 Paid

Another week gone in 2010. My, how they fly.

Lots of taxes this week. Our first cellular phone bill arrived in the mail, which included 3.48 of miscellaneous lifeline credits and other 911 surcharges. My wife got paid again, which bumped our total up about 1200. Recall that her paychecks are structured strangely, so this time her withholdings increased to $875 federal, $349 state, and $51 medicare. We also went out to eat with friends a few times, filled the car up with gas again, and bought just a few groceries, which are mostly untaxed.

As I was doing our taxes this week, I realized that this project ultimately will have to carry into 2011 in order to find out how much we over- or underpaid our federal and state income taxes in 2010. After we subtract any refunds and add any payments, then we will have an accurate count for 2010. I do not expect much of a change, however, since this year we got a refund (net state and federal) of about $300.

Sunday Summary – $2264

Okay, so it’s a Monday, but this weekend was a 3-day, so hopefully you’ll give me a pass. Last week saw some car repairs, clothing purchases, and my first paycheck of the year. Nothing exceptional here, just a lot of taxes and we’re not even through the first month of the year.

First Paycheck of the Year Redux – California Gets Greedy!

Today is the first paycheck of the year for me. I get paid 26 times a year, barring any sort of anomalies like a retroactive raise or bonus, which is rare. Pretty much all of these cheques will be the same, except for 1 or 2 where the gross will be over the $106800 social security wage base at the end of the year. That is, I won’t contribute social security taxes my last couple paychecks, which is always nice around the holidays. I wish social security didn’t exist; my retirement would be locked up solidly if I had an extra $6600 a year to invest.

So, here’s the run-down. Taxes this cheque included $857 in federal, $320 in California state (this was $275 last year), $63 in medicare, $271 in social security, and $48 in California disability/unemployment insurance. This is a total of $1558 or about 35% of my gross pay.

Interestingly, although I got a 1.5% raise last year, my paycheck is about the same as it was before the raise! California has decided to front-load their income taxes, making us pay more throughout the year and will give us a refund come tax filing season (April 2011). Supposedly the tax liability is the same, but they want cash faster. I’ll believe that my tax liability is the same when I see the returns. I wish I could get an interest-free loan somehow. Hell, California will probably just give me an IOU instead of a real refund. In all honesty, however, we generally owe a little bit of money to California for our taxes, so this might balance it out.

One thing that I don’t know whether to count toward taxes paid is the employer’s side of social security. Technically, our human resources department classifies this as a fringe benefit. Presumably it’s part of my total compensation and, if the tax didn’t exist, would have to be paid to me in cash as that’s what the market rate for my labor would dictate. Alternatively, if I was a contractor doing the very same job, I’d have to ask for a higher pay rate because I would be expected to pay both sides of SSI and Medicare. Oh well, it’s easy enough to calculate the overall tax percentage at the end of the year with it or without it. It would be another $6621.60 paid on behalf of me. I’d be interested to hear what you think about that.

Sunday Summary – $626

Already another week finished, and 10 days into the new year. This week saw our first paycheck of the year, and quite a few purchases. Thankfully, California doesn’t yet tax cold food items from the store. We bought a few tools, a toolbox, some clothes, a couple new pillows from Target, and ate out a couple nights with friends. All told, we’re at just over six-hundred in taxes. Next week should bring my first paycheck and a few car repairs (ugh, both my cars broke this weekend~a seat heater element in the weekend fun car and a door cable in the beater).

First Paycheck of the Year

Monday was the first paycheck of the year. Here’s the breakdown. She is paid twice a month, with the first check being a little more generous than the last for some bizarre LA County HR rules. Everything the county does is bizarre–but that is another post.

This paycheck had gross earnings of $3502. The obvious contributors to taxes are federal income tax withholding of $373, state income tax withholding of $115, and Medicare taxes of $60. My wife does not have to pay into social security, so this reduces her tax burden. You may not know that some counties, back in 1980 before social security was mandatory, opted out of the system entirely! I anticipate that was a very astute move, as I doubt I will get as good of a social security deal as the greatest generation! Read more about that at the National Center for Policy Analysis.

I’m a lucky guy to have a partner with a real career, stable job, and a very decent salary.

Sunday Update – Running Total is $25.69

We’ve managed to spend a few bucks in sales and fuel taxes in the first few days of the new year. We ate out a couple times at some of our favorite restaurants–Café 50s and El Torito. I bought a new swimsuit, goggles, and ear plugs as I’m going to add swimming to my workouts this year. My wife purchased some pants at Banana Republic. Finally, she fueled her car. These few purchases had $25.30 of taxes built in, mostly in the form of the California 9.75% sales tax.

This week will bring my wife’s first paycheck of the year to analyze.

$7.99 of $40.00 fill-up went to taxes — state profits more than producer or gas station

California has one of the highest fuel taxes per gallon in the United States. Included are the federal $0.184/g excise tax, state $0.180/g excise tax, state $0.020/g underground storage tank (UST) tax, and normal state (8.25%) and district (1.5%) sales tax. Here in Los Angeles, that’s another 9.75% on the per gallon sales price. It is unclear to me whether the sales tax is calculated before or after the excise and UST taxes are added. I’m going to guess that the excise taxes are added after sales taxes, since I’ve never heard of taxes compounding upon each other. You can read more about California Fuel Taxes on this State Board of Equalization web page. You can read more about the state and county/district sales taxes on another State Board of Equalization web page .

That means for my wife’s fill-up tonight, where the per-gallon price was $3.459, the taxed portion was about 69 cents. For a $40 fill-up, that was $7.99 or 20%. I’m going out on a limb and suggesting that the state profited more than anyone else in the supply chain on this transaction, since they have practically no marginal costs associated with collecting it. At least, this simple chart suggests that producers’ net margin is on the order of 10-20% over a long period of time. What do you think?

A Long-considered Project

This blog documents how much a married couple in Los Angeles pays in taxes over the course of a year. For a long time I have wondered exactly how much of our income goes toward government spending, and in what ways. Of course, taxes are documented; so, it’s simple to know that, in general, we pay federal, state, sales, gasoline, and telecommunications taxes. One website further enumerates kinds of taxes and estimates how much the average person pays. However, neither of these is very satisfying to me.

Thus, in 2010, we intend to keep a journal of every source of income and every expenditure so that we can share with the public exactly how much we pay in taxes. We will share with you pay stubs and receipts, and together we will categorize and analyze them to build an understanding of “where it all goes.”