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Markp123
Returning Member

Marginal Tax Bracket

I am in the 22% tax bracket.  If I increase my income by $1000, my takes increase by $270.  I assume this means my marginal tax bracket is 27% even though there is no 27% tax bracket.  Is that correct?

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4 Replies

Marginal Tax Bracket

Not necessarily.   It depends on the nature of the income - not all income is taxed at the same rate.   Many credits also depend on income - change the income and the amount of credits also change.  There are many interactions withing the tax laws - change one thing and it effects something else.

 

The only way to know is to compare the tax returns side by side, line for line and see what changes.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
Markp123
Returning Member

Marginal Tax Bracket

I understand all of that.  My return is pretty straight forward.  I have wade income, interest, dividends, pension and social security nothing exotic.  I took my actual 2018 tax return and my adjusted gross put me in the 22% tax bracket and the tax I owed was x.  I increased my wages by $1000 and the tax I owed was x + $270.  So the question still stands is my marginal tax rate 27% even though there is no 27% bracket.

Marginal Tax Bracket


@Markp123 wrote:

I have wade income, interest, dividends, pension and social security nothing exotic.


It is not straight forward at all or simple.  "Marginal tax rate" is a rather meaningless term when you have a mixture like that.

 

1) Dividends are taxed at the qualified divided and capital gains rate, not the tax schedule.

2) Additional income can cause a greater percentage of Social Security to become taxable.  The amount of SS that is taxable is not based on the tax schedule, but the taxable social security worksheet.

 

The tax rate schedule is not used when dividends and social security are involved so margional tax rate becomes rather meaningless.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

Marginal Tax Bracket

Did you finally solve the puzzle?  If you did, I would really appreciate it if you could share your understanding.

I am having the same puzzle now: I am in the 22% tax bracket (the number is far away from the either end of the bracket), but I (hypothetically) increase or decrease  ordinary income of $1000, I would increase or decrease the tax by $270 (instead of expected $220). I still do not understand why the marginal tax rate (27%) is (much) higher than tax bracket (22%).  Thanks!

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