Taxes are a fact of life (as much as we may wish they weren’t). As adults, we know there are many different types of taxes, and ways that you pay taxes. However, the concept of taxes can be tricky to explain to our kids.
You have to give away your own hard-earned money to the government? And the exact amount changes, and sometimes you pay taxes immediately and sometimes once a year, it depends on what kind of tax it is?
We get it. Taxes can be convoluted for even the most educated adults, so we want to make it easier by providing resources for you and your family to explain these concepts and encourage discussions (with Till as your backup support).
First up, we’re diving into sales tax. Sales tax is often kids’ first experience with taxes, and likely the tax they encounter most frequently.
It’s important for kids to understand sales tax so they can budget accurately and not be surprised at checkout. Especially for kids’ first spending experiences, understanding sales tax and when it applies helps kids become smarter spenders.
What is sales tax?
Sales tax is an amount added to the final cost of whatever you buy at a given time. As you can probably tell from the name, sales tax is a tax imposed at the point of sale.
Now when we say “sale,” we’re not talking about discounts or holiday promotions – in the context of sales tax, the point of sale means the time at which you actually pay for the purchase.
In the U.S., we tend to show pre-tax prices.
Think about the last time you went to buy something like a soda or bag of chips – did you notice the price of the item listed may have been slightly different than the price you ended up paying? That’s because in the U.S., we tend to show pre-tax prices. The sales tax is then added at checkout, and that’s why you might see your $1.95 soda actually end up costing $2.10.
How much is sales tax?
Now you know sales tax adds some amount to how much you end up paying for an item. But how much? Well, that’s where it can get a little tricky. Sales tax can differ state-to-state and even city-to-city, because sales tax is a state and local tax, not a federal tax.
So how much is sales tax across all these states? Taking a look at the states with the least and most sales tax imposed in 2023, we have a range of 1.76% (Alaska) to 9.55% (Louisiana). There are also four states in the U.S. that don’t charge sales tax – Delaware, Montana, New Hampshire, and Oregon. And notably, the previously mentioned Alaska actually doesn’t have statewide sales tax either, but does have local sales tax - the 1.76% is the average combined state and local sales tax for the state.
At the end of the day, it’s important to know that how much you pay in total for a soda in Ohio can be different from how much you pay in New York. Kind of weird, right? Now let’s dig into why that is and what exactly sales tax is for.
What is sales tax for?
Knowing you get charged more for sales tax in different places, you’re probably wondering “Why? What am I paying for?”
Great question. Like many taxes, the money from sales tax is used to fund various government programs and services. Those can include transportation (like maintaining the roads in your area so vehicles can drive safely), education (helping fund after-school programs, supplies the schools need, and more), and healthcare (think building hospitals and other medical needs).
Paying taxes is part of being an active member in our communities.
Even if you don’t feel like you use all the things taxes pay for, you still have to pay them. Paying taxes is part of being an active member in our communities, and is one of the ways we’re all connected to each other. When you pay taxes it helps your next-door neighbor, your teachers, your friends and their families, and anyone else who lives in your community.
Wrapping up
While it may not be your favorite topic to discuss over the dinner table, understanding taxes is an essential part of our kids’ journey to becoming smarter spenders.
By fostering discussions (and utilizing Till as a helpful resource) families can navigate the world of taxes together, building a foundation for financial success and community engagement
