Bait and switch is alive and well and living in DC

Bait and switch

The old bait and switch is alive and well and living in Washington DC. In all of the news releases and reports regarding the ‘Cash for Clunkers’ program did you see one mention of taxes? I know I never did. If you were told that the rebate would only be worth less than two thirds of the advertised amount would it change your decision making process? Well, here’s the latest, the rebates paid out as a result of Cash for Clunkers are a taxable income item. That’s right, you’ll need to add that as income on your 2009 tax return.

Since people pay various tax rates based on income and state we’ll make some assumptions. You can insert your local state rates to see what the tax bite was for you. For this example we’ll use Virginia rates and assume you are married earning $70,000. You will owe 28% to Uncle Sam and 5.75% to the Commonwealth of Virginia. This amounts to a $1,500 tax bite from a $4,500 rebate. Not happy? Now tack on the sales tax implications. Since this was not a trade, most states will not deduct the amunt from the sales taxable amount. In VA this another 3% hit or $135. You’ve seen your $4,500 rebate dwindle to around $2,865. Hope your clunker was worth less than that!