KochuK
Employee Tax Expert

Get your taxes done using TurboTax

Hi ddricci12

 Good day!

Please examine the mechanics of "Qualified Dividends and Capital Gain Tax Worksheet - Line 16"

2020 form 1040 instructions Page 36 of https://www.irs.gov/pub/irs-pdf/i1040gi.pdf

To simplify in general terms, the worksheet separates Taxable Income into two groups: 

(1) Qualified dividends and Capital Gains that could subject to special rates;

(2) all other taxable income that is subject to regular tax table.

 

Then, we look at 2021 Long Term Capital Gain and Qualified Dividends Maximum Tax Rates table:

Single

(2) to fill the bracket $0 and $40,400. If not filled out, the extra is part of (1) to enjoy 0% special tax rate.

Then we go to next bracket $40,401 - $445,800 for 15% special tax rate for the balance of (1).

Then we go to next bracket $445,851 and above for the special tax rate of 20% for the balance of (1) after 15%.

 

For example, Single filer, total taxable income is $50K with regular component $30K, capital gain $20K:

Capital gain 0% ($40,400 - $30,000 = 10,400 no tax);

Capital gain 15% ($20,000 - $10,400) *15% = $1,440 tax

Plus regular tax on $30K is the total tax liability.

 

Another example, Single, total taxable income is $80K with regular component $60K, capital gain $20K:

Capital gain 0% ($40,400 - $40,400 = 0);

Capital gain 15% ($20,000 - 0) *15% = $3,000 tax

Plus regular tax on $60K is the total tax liability.

 

This is a simplified explanation. Please refer to the worksheet for the caps, limitation and calculation. There is also Schedule D tax worksheet for special types of investment sales. TurboTax program takes care of all. Hope this helps.

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"