To encourage their employees to purchase environmentally friendly hybrid cars, several companies reportedly are offering “rebates” or cash incentives to their employees in select areas to offset the purchase price of these vehicles. Just like other forms of compensation, these cash incentives are taxable compensation.

Employers should include the cash incentive amounts in employees’ compensation reported on year-end Form W-2 earnings statements. The cash incentives also are subject to income tax withholding and employment tax. The tax code provides for an exclusion from income for employee discounts only if the employer produces the product and certain other requirements are met.

The tax code already includes incentives for the purchase of hybrid cars. The Alternative Motor Vehicle Credit for hybrid vehicles applies to vehicles purchased on or after Jan. 1, 2006, and it may be as much as $3,400 for those who purchase the most fuel-efficient vehicles.

@IRSTax

No. 1 Anchorage, Alaska

Income tax: $0
Property tax: $2,572
Sales tax: $0
Auto tax: $165

STATE & LOCAL TAX BURDEN: 3.6%
(National median tax burden: 8.5%)

Urban Facts: Taxes? Residents of Anchorage actually receive an annual “dividend” payment derived from levies on state oil drilling operations.

In sheer geographic size, the city of Anchorage is larger than the state of Rhode Island. It is home to 42% of all Alaskan residents.

No. 2 Manchester, New Hampshire

Income tax: $0
Property tax: $2,349
Sales tax: $0
Auto tax: $493

STATE & LOCAL TAX BURDEN: 3.8%

Urban Facts: New Hampshire’s favorable tax structure and Manchester’s proximity to Boston makes it an attractive residence for flinty New Englanders.

No. 3 Cheyenne, Wyoming

Income tax: $0
Property tax: $1,326
Sales tax: $1,512
Auto tax: $665

STATE & LOCAL TAX BURDEN: 4.7%

Urban Facts: Levies on mining and oil account for nearly half of the Equality State’s tax revenues. Cheyenne is in close proximity to the geographical center of North America.

No. 4 Seattle, Washington

Income tax: $0
Property tax: $1,698
Sales tax: $1,561
Auto tax: $457

STATE & LOCAL TAX BURDEN: 5.0%

Urban Facts: Seattle may be a tax-friendly city, but it also has a high cost of living, well above the national average.

The median home sales price was $375,000 for last quarter of 2008, compared to $200,000 at the national level.

No. 5 Las Vegas, Nevada

Income tax: $0
Property tax: $2,251
Sales tax: $1,072
Auto tax: $486

STATE & LOCAL TAX BURDEN: 5.1%

Urban Facts: Gaming taxes account for 27% of the state’s general revenue funds.

The city’s rapid growth a few years ago that drew more than 5,000 new residents every month was propped up on subprime lending. Now Las Vegas has the highest foreclosure rate among U.S. cities.

No. 6 Jacksonville, Florida

Income tax: $0
Property tax: $2,456
Sales tax: $1,284
Auto tax: $195

STATE & LOCAL TAX BURDEN: 5.2%

Urban Facts: The state intangibles tax on certain investments was repealed in 2007.

Jacksonville is the third-most populous city on the East Coast, after New York City and Philadelphia. (Other cities such as Boston, Washington, D.C., and Miami have larger metropolitan area populations.)

No. 7 Sioux Falls, South Dakota

Income tax: $0
Property tax: $2,760
Sales tax: $1,518
Auto tax: $294

STATE & LOCAL TAX BURDEN: 6.1%

Urban Facts: In fiscal year 2007, lottery gaming put $110 million in the state till to provide a 30% property-tax relief.

Sioux Falls has the largest shopping center between Minneapolis and Denver.

No. 8 Phoenix, Arizona

Income tax: $1,241
Property tax: $1,401
Sales tax: $1,849
Auto tax: $588

STATE & LOCAL TAX BURDEN: 6.8%

Urban Facts: Tax information for Phoenix includes the entire metropolitan area which extends to cities of Scottsdale, Mesa, Tempe, Mesa, Chandler, Gilbert, Glendale and Peoria. But housing prices and local tax can vary significantly from locality to locality.

No. 9 Billings, Montana

Income tax: $2,559
Property tax: $1,865
Sales tax: $0
Auto tax: $689

STATE & LOCAL TAX BURDEN: 6.8%

Urban Facts: Billings taxpayers with adjusted gross incomes of less than $30,000 can exclude up to $3,600 of their pension income from state taxes.

Dubbed locally as the “Magic City,” Billings is supporting growth by dunning its energy, agriculture, and transportation industries.

No. 10 Chicago, Illinois

Income tax: $2,019
Property tax: $1,023
Sales tax: $1,624
Auto tax: $478

STATE & LOCAL TAX BURDEN: 6.9%

Urban Facts: Chicago’s effective real-estate tax rate of .70% and various exemption programs keep real property tax low. Just keep in mind that this surprisingly tax-friendly city doesn’t offer the same breaks for other cost-of-living expenses.

@IRSTax

Millions of workers would soon see an extra $13 in their weekly paychecks and thousands of small businesses operating in the red could get tax refunds under the economic recovery bill nearing completion in Congress.

Businesses won’t fare as well as they did in earlier versions of the legislation. But most of the tax cuts for families and individuals were preserved, though some were reduced.

There are tax breaks for low-income families with children; college students; first-time homebuyers; people who buy new automobiles; and those collecting unemployment benefits.

The Obama administration says 95 percent of taxpayers will get relief.

“There are provisions that could pay you now and some that could pay you later,” said Amy McAnarney, executive director of the Tax Institute at H&R Block. “They’re going to give you money to spend, and then they’re going to give you incentives to spend it.”

In all, the $789 billion plan includes about $280 billion in tax cuts.

@IRSTax

The making work pay credit has expired. You cannot claim it on your 2011 return. Schedule M is no longer in use.

You cannot claim the alternative motor vehicle credit for a vehicle you bought after 2010, unless the vehicle is anew fuel cell motor vehicle.