If you know when a tax holiday will occur, you can plan your shopping to save money. Learn more about when tax holidays happen and how you can take advantage of them.
Definition and Examples of a Tax Holiday
A tax holiday is a specific time when a certain type of tax or a tax on some items is either suspended or reduced. These are different from calendar holidays, like Christmas or Thanksgiving. One of the most common types of tax holidays is a sales tax holiday. During a sales tax holiday, which many states offer, there’s no sales tax for a given period. This often lasts several days, depending on what the jurisdiction decides. In some cases, the sales tax holiday applies to all purchases generally. At other times, it applies to only some spending categories. Massachusetts offers a sales tax holiday, which occurred for two days in 2021. During this time, there was no sales tax on retail items for personal use costing up to $2,500. But sometimes sales tax holidays apply to more specific items and can run for longer periods. Florida, for instance, offers more than one type of sales tax holiday. One of these holidays ran for over a week in 2021. During this time, consumers didn’t have to pay sales tax on qualifying disaster-preparedness supplies. Later in 2021, Florida also offered a sales tax holiday for eligible back-to-school items. This tax holiday lasted for more than a week. Sales tax holidays are some of the most well-known types of tax holidays. There are other types, though. For example, in 2011-2012, the federal government provided a payroll tax holiday. This reduced the employee share of Social Security tax from 6.2% to 4.2%.
How a Tax Holiday Works
A tax holiday is often set through legislation. This can be done either at the federal or state level. The government passes a law that lowers or gets rid of certain taxes for a set stretch of time. In many states, the same sales tax holidays happen every year. Consumers know they can make certain purchases during that time without paying sales tax. Often, certain purchases won’t qualify for a tax holiday. What you can buy without paying sales tax depends on the law that was passed. For example, Florida’s back-to-school sales tax holiday applied only to clothing that costs $60 or less per item (among other types of purchases). Tax holidays are sometimes temporary or require the law to be renewed every year. For example, the payroll tax holiday during the Obama administration was part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. This was only set to make the payroll tax holiday run through 2011. But another law was passed to extend the payroll tax holiday for two more months. This was then followed by another law that enabled it to run through 2012.
What a Tax Holiday Means for Individuals
Tax holidays offer you the chance to save money on taxes. If you live in a state that has a sales tax holiday, you can wait to shop for things that qualify for lower or no sales tax during these holidays. For example, some states, including Missouri, have sales tax holidays on Energy Star-certified appliances. So, if you are a Missouri resident who wants to buy an energy-efficient washing machine, consider waiting to buy it until the tax holiday. This will let you save money by paying no sales tax on your new washer. Depending on your state sales tax and what you buy, your savings can add up quickly. In Massachusetts, for example, the exemption on sales tax for qualifying purchases during its sales tax holidays means that if you made a $2,500 purchase, you would save $156.25 by not paying the state’s 6.25% sales tax.
