determining your marginal tax rate

[tuxedorose]

none of the posts about how to use TT to tell me my marginal tax rates have helped.

now i tried to temporarily add a 'fake' $100 of income under "1099-misc" section.   when I do this I see my taxes (in TT window) go up MORE than what the tax tables show for my taxable income.        Is there something Im forgetting about here

I entered $100 and answered the question that yes this income is similar to work like my regular job

im using the downloaded mac s/w for tax year 2020

[Opus 17]

The tax tables are a bit odd, they go in $50 increments.  So in some cases, a $2 change in income (from $43,199 to $43,201, for example), can cause an $8 increase in tax.

Also, for self-employment, remember you are paying regular income tax PLUS about 15% (actually 14.1% net after adjustments) self-employment tax.   If your income is more than $137,000, you don't pay SE tax, but if your income is more than $200,000, you pay an additional 0.9% medicare tax. 

Alternatively, at low income, adding small amounts of income may increase your child tax credit or increase or decrease your earned income credit.

And don't forget that your state taxes your income separately, it's not part of the federal marginal rate calculation. 

Your marginal tax rate is either 10%, 12%, 22%, or 24% (for most people) and can be found on this table. 

https://taxfoundation.org/2021-tax-brackets/

[tuxedorose]

thanks...

I dont pay Self Employment tax but do you think TT was taking that 'fake' $100 i entered as 1099-misc income and adding self employment tax and thats why my 'marginal rate seemed so high?  I dont recall it telling me im subject to SE tax for that entry

It sounds like your suggestion is not to use TT to tell me marginal rate but instead just use my 'taxable income' and simply compare that to the printed tax table ?    this makes sense i suppose.. keep it simple

it doesnt give  me a lot of confidence  that TT wasnt giving me the total tax i expected after I added the theoretical $100...

[Critter-3]

Since you are using the downloaded version you can use the WHAT IF tool ...

This is my mini version of  a tutorial  that should be in the downloaded program: 

 

What is Forms Mode?

Forms Mode lets you view and make changes to your tax forms "behind the scenes."

If you're adventurous, you can even prepare your return in Forms Mode, but we don't recommend it. You may miss obscure credits and deductions you qualify for, and you may forget to report things that will come back and haunt you later.

Forms Mode is exclusively available in the TurboTax CD/Download software. It is not available in TurboTax Online.

Related Information:

• Why would I use Forms Mode?
• How do I switch to Forms Mode in the TurboTax for Windows software?
• How do I switch to Forms Mode in the TurboTax for Mac software?
• What is-the-meaning-of-all-the-different-colors-in-forms-mode

If you want to play around with different figures and tax scenarios without affecting your original return you can ….

• >>>In the TurboTax CD/Download software by creating a test copy: 
• 1.  Open your return in TurboTax. 
• 2.  From the File menu, choose Save As. 
• 3.  Give the copy a new name to distinguish it from the original (for example, by adding "Test" or "Example" to the file name). 
• 4. Click  Save. You are now safely working in the test copy and anything you do here will not affect the original. 
•  https://ttlc.intuit.com/questions/1900642-how-to-make-a-test-copy-of-your-return

• >>  use the WHAT IF tool: 
• - Click Forms Icon (upper right of screen) or Ctrl 2 (forms view) 
• - Click on the Open Form Icon 
• - In the “Type a form name.” area type What-If (with the dash), click on the name of the worksheet - click on Open Form 
• - You will see the worksheet on the right side of the screen; enter the information right into the form 
• - To get back to interview mode - click on the Step-by-Step Icon (upper right of screen) or Ctrl 1

It's always a good idea to make a backup copy of your tax data file, in case your original gets lost or corrupted. Here's how:

1. From the File menu in the upper-left corner of TurboTax, choose Save As (Windows) or Save (Mac).
2. Browse to where you want to save your backup.
   • Tip: If you're saving to a portable device, save it to your computer first to prevent data corruption. Then, after completing Step 4, copy or move the backup file to your device.
3. In the File name field, enter a name that will distinguish it from the original tax file (for example, add "Backup" or "Copy" to the file name)
4. Click Save and then close TurboTax.
5. Restart TurboTax and open the backup copy to make sure it's not corrupted. If you get an error, delete the backup and repeat these steps.

If you make changes to your original tax return file, repeat these steps to ensure your original and backup copies are in-synch.

Related Information:                             

• Retrieve a Tax File from a Portable Device
• What's the difference between the tax data file and the PDF file?

AND save it as a PDF so you have access to a copy even if you don’t have the program still installed and operational :

• How do I save my return as a PDF in the TurboTax software for Windows?
• How do I save my return as a PDF in the TurboTax software for Mac?

AND protect the files :

• How can I protect the tax files on my computer?

[tuxedorose]

wow... Im comfortable with switching back and forth to the forms view but I didnt knwo this what-if feature was there! very cool.   too bad its not documented

Im trying to use it but cant quite figure it out.... Lets say I just wanted to increase my income by $100 just to see the impact on my end taxes... can you walk me through this , ie where to enter the changes and where to see the impact?

[VolvoGirl]

First of all (if you haven't) make a copy of your file and test in the copy.  Go up to File-Save As or for Mac it might say Duplicate.  Give it another name to test in.   Then you can add $100 to your W2 box 1 or to whatever kind of income it will be. Then open the forms and see what changed from your real tax return.  You should have saved your real tax return as a pdf with all the worksheets so you can compare the test file to it.   

[tuxedorose]

thanks but i was asking about how to do this with the 'what-if' tool that @Critter-3 was referring to.

[Critter-3]

follow the form  and change the lines you want under different scenarios ...

[Opus 17]

@tuxedorose 

A 1099-MISC can get categorized as self-employment if you don’t answer the test questions in just the right way.  

[Hal_Al · Accepted solution]

When you tell TT that "this income is similar to work like my regular job", it will be treated as self employment and TT will calculate self employment tax as well as income tax.

I agree with the comment "simply compare taxable income that to the printed tax table" to find your marginal rate.  See brackets at:

https://taxfoundation.org/publications/federal-tax-rates-and-tax-brackets/

or

https://www.forbes.com/advisor/taxes/taxes-federal-income-tax-bracket/

The brackets are for "Taxable income" (after standard or itemized deductions) not total income or Adjusted Gross income (AGI).

[edreier01]

Here's an example.

1. Married seniors, filing jointly, both 66+ for the entire year.

2. Adjusted gross $33,237 - (line 11).

3. Tried adding $1000 to IRA distributions

4. Taxes on that $1000 is (I think "is" is correct?) $185.

5. Using the standard deduction, taxable income increased from $5262 to $6262 - (line15).

5. How do I determine that the marginal tax rate is now 18.5% ( I assume Turbo Tax is correct) instead of 10%?

[Hal_Al]

An increase in your total income and Adjusted Gross Income makes more of you social security taxable.  That's the usual explanation why the % appears to be more than the 10% marginal  rate at that income level.  But your taxable income (line 15) would increase by more than $1000.