'Cash for Clunkers' Taxable Income Rumor is False!
A Rumor is Spreading that People Who Took Advantage of 'Cash for Clunkers' Program with Have to Pay Income Tax
We won't be posting any links to the sites spreading the false "Cash for Clunkers taxable income" rumors, but rather set the record straight with some factual information about the program. The Cash for Clunkers program has its own web-site where people have been going for information about the program and cars that qualify for the program. That site is used to provide very helpful questions and answers as well as FAQ's about the Car Allowance Rebate System. The original thought was probably that it could be a great source for information if people weren't sure about things, and it was apparently skipped over by many bloggers trying to spread false rumors.
On the main Q & A Page for the Cars web-site (located here) the following question is posed: "Is the credit subject to being taxed as income to consumers that participate in the program?" The answer posted right there in bold capital letters states "NO." The answer goes on to explain that "The CARS Act expressly provides that the credit is not income for the consumer." This is as plain as day as an answer can be when it comes from the Government, and there isn't much there that can confuse the reader that is looking to learn more about the Cash for Clunkers program. This is not an income to consumers, and therefore isn't under an income tax penalties.
It's pretty clear that someone along the way either became confused with what was going on with the program, or they just didn't care when it came to passing on the correct information. As with any purchase, the sale of a car may have sales tax associated it depending on each person's state law, but that is a given as this is a purchase and it will have sales tax. There is no income tax on the tax credit though, so people should rest assured, and not buy into the paranoia that some web-sites are trying to create.
Sources:
Published by Ryan Christopher DeVault - Featured Contributor in Sports
Born in Seattle, Washington, I am a 31 year old college graduate working in the field of Education and Research. I am also a professional freelance writer and news content provider. I can be reached at... View profile
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14 Comments
Post a CommentThe rebate does not reduce your sales tax liability. Additionally, there is nothing stopping states from considering this income. If you think all states have the same interests as the Federal government, you're wrong.
It may not be subject to federal income taxes, but depending upon what state you live in, it could be subject to state taxes.
Nevermind. I must have read the bill before the final version. The final bill is pretty clear and reads:
"(2) FOR PURPOSES OF TAXATION- A voucher issued under the program or any payment made for such a voucher pursuant to subsection (a)(3) shall not be considered as gross income of the purchaser of a vehicle for purposes of the Internal Revenue Code of 1986."
The FAQ page says the law "Expressly" says it won't be taxable income. But, where does it say that? I read the law and didn't see it.
There was only one mention of either income or tax, and it was related to combinations with other state or federal incentives.
This is very misleading. For Federal income taxes, the law is clear that it is taxable income for the dealers, not customers. However, some states might consider it as taxable income. There is a clause in the law that states can't count it for benefit eligibility (says nothing about alimony or child support) but this is constitutionally dubious and states may ignore it. Furthermore state sales tax rates and other vehicle taxes are at a much higher rate than the effective Federal tax rate of the vast majority of Americans.
I dount the states will be pushing for a tax either. Thanks for clearing this up Ryan.
If you are asking if there is federal income tax now, the answer is still "no" there is no federal income tax on the cash for clunkers program.
Last post went haywire. Here is the link http://www.keloland.com/NewsDetail6162.cfm?Id=0,89084
This story would indicate otherwise. Plus most states will require excise or sales tax on the value of the new vehicle less the trade-in value%3A %28%24100-%24300 for most of the clunkers%29. So many people will in fact pay taxes on the clunkers rebate. Is your story still accurate%3F
Well, depending on the state you paid sales tax on the $4,500. In MD you did, in PA you didn't.
Then each state makes its own income tax rules. Most follow the federal rules in most areas but not all.
So depending where you are it might be taxed at some rate.
All the website says is it isn't subject to Federal Income Taxes.