There is a misinformation war afoot with regards to the CARS program or Cash for Clunkers as it’s known commonly. The question centers around whether the program is a taxable event for your income tax. The offical CARS website available at http://www.cars.gov expressly calls out:
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.
But there is a slight catch you might want to watch out for on the next line:
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.
You’ll need to check the tax laws for your own state and definitely consult a tax advisor. But as of this moment here is the list of those states that charge sales tax and those that don’t.
State Tax on Cash for Clunkers
- New Jersey
- New York
- South Carolina
- South Dakota
If you did purchase a new vehicle with the voucher then you already paid for the tax when you bought your new car.
No State Tax on Cash for Clunkers
For some more detailed information on the overall CARS program be sure to check out
Cash for clunkers Tax Rules at Good Financial Cents
Cash for Clunkers Tax Rules – The Truth at Four Pillars
Cash for clunkers Tax Rules at Tax Gab
Cash for Clunkers Tax Rules at Prime Time Money
Cash for Clunkers Taxable Income at FrugalDad