Federal Telephone Excise Tax

Did you know that your local phone usage is being taxed and collected by the IRS? Yup.

The federal telephone excise tax is a 3% federal tax on local telephone services. Phone companies collect the tax from customers, and the IRS collects those bundles from the phone companies. But don’t worry...it doesn’t apply to everything. For instance, prepaid cards, voice-over-internet-protocol (VOIP), and most importantly, your cell phone, probably (if it costs you more to call long-distance, it’s getting taxed; if it costs you the same to call anywhere in the US, then it’s not getting taxed with this tax).

There’s a reason all of these “modern” services aren’t being slapped with the federal telephone excise tax: because the tax was made a loooong time ago...like 1898…to help fund the Spanish American War. Yep, that’s before there was a federal income tax.

At that time, the federal telephone excise tax was mostly a tax on the wealthy, who were the only ones who could really afford local calls. This excise tax has bounced around since then, getting axed and revived again (such as during The Great Depression) and it just so happens that we still have it right now. What is a phone any more, anyway? Can't you call from your computer, your ear buds, and soon...psychically?