Adventures in OMG are we going to have to pay huge amounts of taxes on our slightly under a year in paradise?

Back when we went to Paradise for my leave, we spent hours and hours researching the tax situation.  We read lots of stuff online.  We read articles published in tax journals available from the uni library.  We talked to friends and colleagues who had taken out-of-state leave recently, including one who had both gone to Paradise for leave and who had used a professional accountant.  We called up the tax board in Paradise and asked.

Everything was unanimous (well, except a couple of random internet Q/A things that didn’t really look legit)– if we lived there less than a year, kept our residence here, didn’t register to vote or get a driver’s license etc., then we would only have to pay taxes on income directly from places in Paradise.  We would be considered non-residents, and non-residents only have to pay taxes from Paradise-sources, not from, say, my University salary.

So, of course, the other day in the mail we got two scary tax documents from the Paradise tax board asking us for our 2015 Paradise state taxes.  Apparently the fact that we sent our federal taxes from a Paradise address meant that they expected us to file a return.

Which freaked us out, because our state taxes where we normally live are a pittance compared to state income taxes in Paradise.  We’re talking thousands of dollars if all of our income counted.

So we redid the internet searching and DH called the tax board in Paradise again.

Turns out we had a 1099 from an honorarium I got in Paradise, and although I normally don’t have to pay Paradise state-income taxes on honoraria from Paradise (which I tend to get once every few years), since I was living in Paradise at the time, I did need to pay state income taxes on that income.

So we just needed to file a non-resident tax form, which is a pain, but the only part we’re going to be taxed on is the honorarium plus a small penalty.

We’re talking maximum $100, not the thousands we’d been envisioning.

Whew.

That was a bit terrifying there, but we can handle $100.

Update:  After about 6 hours of dealing with Paradise non-resident state tax forms, we ended up owing $46 plus $48 in late penalties and interest, for a total sum of $94.  So I guess the penalty wasn’t so small after all!

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Ask the grumpies: Why did they stop taking social security taxes out?

High earner asks:

I just noticed that for the last few months of 2014, there was no social security tax deducted from my salary, and then in January, it went back up to where it was before that. Does that make any sense???

then a follow-up:

I think I just figured it out. Do they deduct the standard percent each month of the calendar year until you reach the maximum based on the annual taxable limit of $117,000, and then they stop deducting?

We at grumpy rumblings thank high earner for answering hir own question.  (Note:  In 2015, the maximum amount of taxable earnings is $118,500.)  When policy makers talk about eliminating the tax cap on Social Security, this is what they’re talking about.

We are pro- this tax cap elimination because it comes as a surprise to most people the first time they hit it!  (And it’s a lot more progressive than cutting Social Security benefits for people who need them, though some cuts make sense given longer working lives.) In the mean time, though, we wish we earned more money so we could take advantage of it…

Haig-Simons Taxes: Is the tax system unfair to paid labor?

Sometimes economics blows your mind.

There’s an idea in economics of what fair taxes should look at.  There are several concepts of fairness, including vertical and horozontal equity.  We’ve talked about why there are progressive marginal tax rates before.

Back to the concept that messes with your mind.

“Ideal” taxes are termed Haig-Simons taxes (technically it’s taxes under the Haig Simons Income Definition… but that’s a mouthful).  These suggest that if unpaid work is equivalent to paid work, it should be taxed equivalently. The idea being that by its nature, the tax code discourages work that produces income (generally for elastic secondary earners) even though it should be treating it neutrally.   So there shouldn’t be a tax advantage to cleaning your own floors–or rather, there shouldn’t be a tax penalty to paying someone else to do so.

Would SAHP be willing to be taxed at 150K or whatever the going rate on salary.com is that year? Probably not. Not what we call politically feasible.

So what we do instead is dependent daycare credits or tax exemptions for childcare, but they only cover a fraction of daycare most places and they have their own problems with changing people’s behavior. And that’s only daycare.  What about the tax advantage to building your own deck rather than paying someone else to do it?

Of course, the tax system is also used to change behavior on purpose– to decrease negative externalities (ex. second hand smoke) and increase positive externalities (ex. giving to charity), and sometimes bleeding heart liberals add a little paternalism in there to keep people from harming themselves (libertarians say let them harm themselves!)  So those uses of the tax system are not included in Haig-Simons.

What do you all think?  Given that we tax labor market production (you know, to fund defense and other public goods), is it unfair to tax labor market production but not home production?