rjs
Level 15
Level 15
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Tax law changes

Since the Tax Bracket Calculator does not ask about qualified dividends and long-term capital gain, I have to assume that it does not take those into consideration. You can use it to determine the marginal tax bracket for your ordinary income by entering only your taxable ordinary income.


Qualified dividends and long-term capital gain do not increase the tax on your ordinary income. They do not push ordinary income into a higher bracket. (It's the other way around. Additional ordinary income can push some of your qualified dividends and long-term capital gain into a higher bracket. Qualified dividends and long-term capital gain are "stacked" on top of ordinary income to calculate the tax.)


The brackets for qualified dividends and long-term capital gain are, in your terms, "marginal," like the brackets for ordinary income. They are not "cliff." So your qualified dividends and long-term capital gain are not necessarily all taxed at the same rate. It can straddle brackets, like ordinary income does.


Note that the tax calculation for both ordinary income and qualified dividends and long-term capital gain is based on taxable income, not total income. The tax bracket tables are based on taxable income.


You can see exactly how the tax calculation is done by looking at the Qualified Dividends and Capital Gain Tax Worksheet on page 37 of the 2023 IRS Instructions for Form 1040. The 2024 version of the worksheet is not available yet. If you want to use it to do your tax calculation you would have to adjust the amounts on lines 6 and 13 for 2024, and use the 2024 brackets for the tax calculations on lines 22 and 24.

 

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