You may be well aware of the tax dollars the government withholds from your paycheck, but this isn't the only way they're tapping your income. Fines, tariffs, estate taxes and lotteries are just a few of the ways that local and federal governments bolster their sagging revenue through indirect taxes. These "hidden taxes" often go largely unnoticed by state and federal taxpayers. Their effect is visible, however, in that it weakens consumer purchasing power and provides additional income for the government.
IN PICTURES: Top 10 Solutions For A Big Tax Bill

  • IRA Penalties
    The government can tap your IRA savings before retirement age, and after, if you make a few of the most common mistakes. Taking money out of your Traditional IRA before the age of 59.5 will result in a significant penalty from Uncle Sam. There are exceptions for certain reasons but most distributions result in a 10% early withdrawal distribution penalty.

    Retirees that are 70.5 or older face a huge penalty for failing to take out the required minimum distribution. The Internal Revenue Service will hit you with a whopping 50% penalty for not taking out the proper withdrawal amount! Let's say your required minimum distribution was $10,000 for the current year. If you only took out $8,000 for your distribution, you would owe the IRS 50% of the $2,000 distribution that you did not take. That's a $1,000 hit for not withdrawing your own money. Ouch! (To learn more, see our Traditional IRAs Tutorial.)

  • Estate Taxes
    Are you thinking about leaving that huge home and your vintage car collection to your relatives? Be wary, because taxes can eat up a large amount of your estate. Estate taxes are a significant source of revenue for the federal government. Any money, possession or valuables that you wish to pass to your beneficiaries will face inheritance taxes.

    The good news is that anyone who has under $3.5 million in their estate will largely avoid estate taxes. The bad news is that anyone who has an estate valued at $3.5 million dollars or more will be subject to a 45% tax on their estate. Every dollar over the $3.5 million threshold is taxed at the 45% rate. This means that the federal government will take 45 cents out of every dollar. The 2011 tax rate is expected to rise even higher - to 55%! And that doesn't even include state inheritance taxes, which means that the government may end up with more of your money than you will.

  • Lotteries
    Lotteries are a major financial windfall for states. A study by the North American Association of State and Provincial Lotteries found that lottery sales raised $52.6 billion dollars for states in 2005. Lotteries are often touted as a way to boost spending in areas such as education, but this rarely occurs.

    So, where does all of the lottery money go? According to the North CarolinaCenter for Public Policy Research, some state lotteries do very little for state economies as the lottery money is "merely substituted for normal levels of appropriation." Basically, states rob Peter to pay Paul. Lottery funds are often used to just maintain the current level of spending. The biggest losers from lotteries are low income individuals. Of all lottery revenue, 82% comes from only 20% of players, a group that is disproportionately composed of low-income individuals. (For more, check out Winning The Jackpot: Dream Or Financial Nightmare.)

  • Property Taxes
    Ad valorem taxes are the number one source of revenue for state governments. Ad valorem taxes are taxes based on the value of your property. Every year, property owners have to pay taxes on the assessed value of their homes and personal property. At a time when property values are declining, property taxes continue to rise.

    Property taxes vary by state. For example, as of 2008, Louisiana had the lowest property taxes with the median property tax being just $188. New Jersey has the highest property taxes in the U.S. with the median property tax being $6,320. Property tax revenue is used to pay for public services such as hospitals, schools, parks, police and fire departments.

  • Sales Taxes
    Sales taxes represent a big chunk of income for states. Sales taxes help fund numerous public services and government programs. A sales tax is a tax on consumption and is added to just about any product that you buy including food, clothing, gasoline, alcohol, cigarettes, etc. The only states that do not currently have a sales tax are Alaska, Delaware, Montana, New Hampshire and Oregon.

  • Traffic Tickets
    Where do cities and towns find extra revenue during tough economic times? The answer is from traffic citations and speeding tickets. Speeding tickets are often referred to as "hidden taxes", because they allow governments to collect revenue from residents and non-residents alike. A study by the Journal of Law and Economics found "statistical evidence that local governments use traffic citation to make up for revenue shortfalls."

    The study showed that speeding tickets and traffic fines increased the year after a decline in revenue. Local governments love traffic tickets because there is no limit on how many can be issued. The next time you are going 45 mph in a 35 mph zone, consider that you could be traveling through a town in search of much needed tax revenue.

The Bottom Line
While these indirect taxes may be slowly siphoning off money from your pocketbook, they are rapidly boosting the coffers of the government. You may have thought your income tax was high, but when you add in all these taxable extras, the government is holding more of your cash than you might think. (For more examples of how Uncle Sam has his hands in your pockets, check out How Much Is The Government Making Off You?)

Still feeling uninformed? Read this week's financial news highlights in Water Cooler Finance: Buffett's Armed and Greece Keeps Falling.

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