Tax Fun Facts

I haven’t had much time to write lately, but here are a few of my favorite facts about the tax code in honor of the upcoming deadline:

• When distinguishing between employees and contractors, the IRS explicitly carves out “a driver who distributes beverages (other than milk).”
• Most people pay taxes evenly throughout the year through withholding from their job. Self-employed or retired people are expected to do the same through quarterly estimated payments. If they choose, they can use a special “annualized income method” to calculate their income differently and make uneven payments.
• Income sourced from federal bonds is generally not considered taxable income in states.
• State and local tax (SALT) deductions allow homeowners to deduct things like property taxes. For people who hit the cap and have a home office, the IRS allows the business-use portion of those taxes to be deducted separately. SALT deductions are now capped at $40k (up from $10k), but the IRS hasn’t updated the instructions for the business-use worksheet to reflect the higher cap yet.
• Olympic medals are taxable and have a whole row devoted to them on the Schedule 1.

It’s easy to look at this list and think it’s just a bunch of random trivia. That’s also why people often frame things they discover in the code as “crazy tax hacks.” Viewed in isolation, many of these rules seem incredibly arbitrary.

But they’re usually not:

• The milkman carve out was introduced in 1950, when milk-delivery was a daily fixture of life.
• Many businesses have lumpy revenue streams– think of a gift shop owner who makes 80% of their sales around the holiday period. It wouldn’t make sense to ask them to make payments in June on income they won’t actually receive until December.
• States can’t tax federal bonds because doing so would allow states to disincentivize their citizens from investing in bonds and indirectly constrain the federal government. This traces all the way back to 1819 when Chief Justice Marshall wrote “The power to tax includes the power to destroy.”
• The SALT cap was only changed this year and is expected to reset back down to 10k in 2030, so not all of the surrounding guidance has been fully updated.
• Most olympians won’t actually pay any tax on their medals– only those with income > 1 million, which allows “true amateurs” without major brand sponsorships to enjoy their prize without consequence.

With that context, each of these feels like a real tool to help achieve specific policy goals at a given point in time. The weird rules usually aren’t weird for no reason, they’re just a solution to a problem you’ve never experienced.