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I see 27% federal tax deducted after I enter 1099-B form. Though I am in 22% tax bracket. What is the additional 5% for? State tax seems to be correct.

 
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2 Replies
MinhT1
Expert Alumni

I see 27% federal tax deducted after I enter 1099-B form. Though I am in 22% tax bracket. What is the additional 5% for? State tax seems to be correct.

As you add income, some income-based credits such as the Earned income credit could decrease, which could give you the impression of a higher marginal tax rate.

 

The Earned Income Tax credit (EITC) is a bell shaped curve against income. The EITC rises with income until a certain level of income when it starts to decrease to reach 0 at the maximum level of income for the category.

 

As an example, please look at the EITC tables from page 33 of this IRS publication.

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I see 27% federal tax deducted after I enter 1099-B form. Though I am in 22% tax bracket. What is the additional 5% for? State tax seems to be correct.

If you also collected Social Security, more of that may have become taxable as a result of the additional income. Or less of, say, your Medical expenses were deductible because of the 7.5% thresshold.

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