Tax Rules And Consequences Of The Cash For Clunkers Program

I’ve written quite a bit about the cash for clunkers program here on Bible Money Matters in relation to how the program worked, who qualified for the rebate, and how you could go about redeeming your voucher.

The program has now run its course, and now that the excitement has died down people are beginning to wonder if there are any other consequences to the program, specifically when it comes to their taxes.

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Cash For Clunkers And Federal Taxes

Many people were concerned that when it came to their federal taxes they might have to treat the $3500-$4500 voucher as taxable income.  When you go to the government’s website, however, they are quick to dispel that notion.  From the cars.gov FAQ:

Is the credit subject to being taxed as income to the consumers that participate in the program? NO. The CARS Act expressly provides that the credit is not income for the consumer.

Since the credit is not treated as taxable income, you won’t have to pay taxes on the voucher for your federal income taxes.

The question still remains, however, will you have to pay state taxes on the voucher/credit?

Cash For Clunkers And State Taxes

The question of whether you’ll have to pay taxes on the credit for state taxes is a bit more murky. From the cars.gov FAQ:

Do I have to pay State or local sales tax on the amount of the CARS program credit? MAYBE. The question of whether a consumer must pay State or local sales tax on the amount of the CARS program credit depends on the sales tax law of each State or locality. Consumers should review the law of their respective States or consult a tax advisor to answer this question.

So the answer is that  yes, you might have to pay taxes on the credit if your state and local authorities say you have to.   I don’t want to post an entire list here of which states do and don’t count the credit as taxable income, but one of my blogging colleagues put together a pretty good list. You can find it here:

Cash For Clunkers Tax Rules

Other Cash For Clunkers Reading:

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Last Edited: 11th February 2014

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