The second annual Beehive Family Report published by the Utah Taxpayers Association sheds a lot of light on the tax burden the typical Utah family faced in 2021. Policymakers can look to the report to understand the overall burden taxpayers face, as well as the impact of any new legislation that takes effect.
The Bob and Brooke Beehive family is a family of five designed to help illustrate the tax burden of a “typical” Utah family. This typical family has been created using data from the U.S. Census Bureau and several publications by the Utah State Tax Commission. Income and spending patterns were taken from both locally and nationally from 2020 and 2021.
The new report sheds light on what they faced in 2021:
Federal Income Tax
The largest change the family saw in 2021 was a significant drop in their federal income tax liability. Bob and Brooke went from paying around $400 in 2021 to a refund of more than $2,300 in 2022. This was due to the large increase in the federal child tax credit for the tax year 2022, which took it from $2,000 per child to $3,000 per child. This resulted in Bob and Brooke getting a large federal income tax refund. Taxpayers should note that this is likely a one-time event, since the credit is back to $2,000 for the 2022 tax year. It is unlikely that Congress will take any action on changing that before year end.
Federal Social Security and Medicare/Payroll Tax
As in previous years, by far the largest tax burden families face is their federal Social Security and Medicare taxes, also known as Payroll Taxes. It makes up over 56% of the overall taxes that they pay, $13,042 out of the $20,814 total. In the example family, Bob works for an employer and Brooke is self-employed. Therefore, Brooke has to pay all 15.3% of her gross income directly in self-employment/payroll tax. Bob has half of the total, 7.65% taken out of his paycheck and the other 7.65% is paid by the employer as payroll tax. Some question why we include the amount Bob’s employer pays in their total tax burden since it is not directly paid by Bob. The answer to that question is rather simple.
When the government started social security in the 1930’s, the initial amount of the tax was 1%. Through the decades since then, the governments’ thirst for more money has caused that rate to be stepped up bit by bit to the current 15.3%. When Medicare was formed in the 1960’s, that tax rate was added in as well. Just because the government has hidden half of the tax by sticking it to the employers instead of directly from the worker, it still effectively comes out of the pocket of the taxpayer in lower wages and increased costs for the employer. One also needs to remember that self employed individuals pay all 15.3%. Therefore, including all of it in the total tax burden is the right thing to do.
The Beehive family saw a modest increase in their property taxes in 2021 due to a few factors. The most significant factor was the continuation of the freeze of the tax rate on the state basic levy, which funds public education statewide. The Legislature passed HB 293 back in 2018, which froze the basic rate for 5 years to create a property tax increase. There is one year left on the freeze. As property values continue to rise, the freeze continues to raise property taxes. This was a factor in the Beehive family’s increased property taxes in 2021.
Additionally, a few of the taxing entities that encompass their property went through the Truth in Taxation process and raised their certified tax rates, which also contributed to their tax increase.
State Income Taxes
The Beehive family saw a modest decrease in their state income tax in 2021 due to the passage of SB 153 (R-Fillmore). That bill increased the personal exemption amount from $565 to $1,750, which decreases income taxes for those with dependents. Even though their income went up over the previous year, Bob and Brooke saw their state income tax liability drop by about $80.
Sales Taxes and Excise Taxes
With national data showing a slightly lower level of spending in most categories in 2021 versus 2020, the sales tax and excise tax burden of the Beehive family remained relatively flat. There were no substantial legislative changes in sales tax or excise tax rates in 2021.
Although the state gas tax rate increased about a half of a cent in 2021, the Beehive family did not see a meaningful change in their auto taxes last year. Based on the registration fees and fuel taxes they paid, their auto taxes were relatively flat.
The Beehive Family report will continue to help policymakers view the overall tax burden the “typical” family in Utah faces each year. It will also help educate them on what potential tax law changes would do to them as well and your Utah Taxpayers Association will continue to provide that information going forward.