These Little-Noticed Tax Hikes Are Raiding Your Wallet

Hidden city taxes
Hidden city taxes

In a tough economy, the last thing many people can afford is for the government to take more of their money. Yet at least in some places, recent tax increases have already taken a big bite out of taxpayers' wallets, and the worst may be yet to come.

The looming expiration of favorable tax rates has grabbed the lion's share of attention lately: In just over six months, much higher tax rates are scheduled to take effect. If the government does nothing, those increases would boost tax bills for people at just about every income level.

But increasingly, state and local governments have been the culprits in making life more difficult for taxpayers.

As U.S. News recently observed, states and municipalities are pulling out all the stops to try to balance their budgets in the wake of falling revenue and greater demand on services. Here are some of the things they're doing:

  • More than a dozen states have raised their sales tax rates in the past five years, with the majority of those doing so by at least a percentage point. According to IRS estimates, each percentage-point increase in sales taxes could cost the typical family of four with a $50,000 income an extra $100 to $200 per year, depending on where they live.

  • States have also hiked other taxes. Illinois pushed its income tax rate from 3% to 5%, but many states have gotten extremely creative in the places they seek higher revenue from taxes and fees, focusing on little-noticed niche sources like hotel tax or fishing licenses.

  • Cities and towns tend to depend on property taxes, which have gotten hurt badly by drops in home prices. That's required big hikes in property tax rates in many areas.

What's Next?

The trend toward higher state and local taxes isn't likely to change anytime soon. The reason is that unlike the federal government, states and cities don't have unlimited borrowing power. Even as they weigh big spending cuts on everything from essential services to employee pensions, state and local governments are trying to balance lower spending with higher tax revenue to balance budgets.

%Gallery-151452%As federal income tax rates become a big issue in this election year, remember to keep an eye on the other taxes you pay. The rises you've already seen could prove to be just the tip of the iceberg.

Motley Fool contributor Dan Caplinger wasn't thrilled when his sales tax went from 5% to 6.25%. You can follow him on Twitter here.

Your resource on tax filing
Tax season is here! Check out the Tax Center on AOL Finance for all the tips and tools you need to maximize your return.
3 Great Tips for Your 2022 Taxes
There's no reason to wait until tax time to start making sure you've checked all the right boxes. Here are three tips for making the most of your money when it comes to filing your taxes in 2022.
Read MoreBrought to you byTurboTax.com
4 Types of Tax Preparers
There are four general types of tax preparers: certified public accountants, enrolled agents, tax attorneys, and non-credentialed preparers. Here's a quick guide on the differences between them.
Read MoreBrought to you byTurboTax.com
Child Tax Credit
Tax reform has caused some changes to the rules for the Child Tax Credit in recent years. Here's how to know whether you qualify for this credit.
Read MoreBrought to you byTurboTax.com
Maximizing Tax Deductions for the Business Use of Your Car
The business use of your car can be one of the largest tax deduction you can take to reduce your business income. This is a big, big deal. Why two bigs? Because your business income is used to calculate two taxes: your personal income tax and your self-employment tax (the amount you pay into Social Security and Medicare as the owner of your rideshare business). Maximizing your deduction for the business use of your car will help you minimize these taxes.
Read MoreBrought to you byTurboTax.com