Tax law changes

One thing you seem to be missing is that you do not have just one tax bracket. You have two separate, different tax brackets, one bracket for ordinary income and another, different bracket for qualified dividends and long-term capital gain.

Another thing you are missing is that the TurboTax Tax Bracket Calculator is misleading you because it does not correctly handle your situation. The Tax Bracket Calculator shows you only one tax bracket, so it cannot possibly be right for both ordinary income and for qualified dividends and long-term capital gain. It allows you to enter only one amount for total taxable income. It does not give you any way to enter the amount of qualified dividends and long-term capital gain separately from ordinary income, so it cannot possibly correctly take into account qualified dividends and long-term capital gain. You have to just forget about the Tax Bracket Calculator. It does not have the ability to give you the information that you want. You cannot use it.

Instead of doing calculations yourself on paper, or using the TurboTax Tax Bracket Calculator, try experimenting with a very simplified test tax return either in the 2024 TurboTax software, if you have it, or using the What-If Worksheet in the 2023 TurboTax software. If you use the What-If Worksheet, check the box at the top of the column to use 2024 tax rates. Select a filing status of married filing jointly. Using the figures from your original question, enter $150,000 of ordinary income and a total of $60,000 of qualified dividends and long-term capital gains. (The specific types of income don't matter.) You will get a total tax of $25,682. Disregard any penalty.

Now add $100 of ordinary income. The tax will increase to $25,704. That's an increase of $22. You are in the 22% bracket for ordinary income. Next, remove the added $100 of ordinary income and add $100 of qualified dividends or long-term capital gain. The tax will now be $25,697, which is an increase of $15. You are in the 15% bracket for qualified dividends and long-term capital gain.

If you enter enough additional income to push your AGI over $250,000, the total tax on Form 1040 line 24 or line 62 of the What-If Worksheet will increase by more than 22% or 15%, but that's because Net Investment Income Tax (NIIT) is being added to the basic income tax. To see only the effect of the tax brackets, you have to look at the tax on Form 1040 line 16 or on line 43b of the What-If Worksheet.

You can easily play around with this simple experimental tax return. Add any amount of qualified dividends and long-term capital gains, and then add another $100 of ordinary income. You will see that the bracket for ordinary income remains 22%. Adding qualified dividends and long-term capital gains does not change the bracket for ordinary income.

I can't be sure what you might be doing wrong on the Qualified Dividends and Capital Gain Tax Worksheet because I can't see your worksheet. But I suspect that you are not calculating line 22 correctly. You said that using the Tax Computation Worksheet "it appears that the tax brackets for Ordinary Income [are] based on your taxable income." That's wrong, and it suggests that you are not carefully following the instructions. There's a key point that is not actually in the instructions for the worksheet, but in the Note at the top of the Tax Computation Worksheet. Line 22 tells you to use the Tax Computation Worksheet to calculate the tax "on the amount on line 5" of the Qualified Dividends and Capital Gain Tax Worksheet. When you do that, what you have to enter on the Tax Computation Worksheet is that amount from line 5 of the Qualified Dividends and Capital Gain Tax Worksheet, NOT your taxable income from Form 1040 line 15. It's not that the Tax Computation Worksheet is based on your taxable income. The problem is that you are making it use taxable income because you are using the wrong amount to do the calculation. If you do it correctly the brackets will be based on the line 5 amount, which is only ordinary income, excluding qualified dividends and long-term capital gain.