Turbo Tax Deluxe; incorrectly calculating tax liability as married filed jointly

[CyclistFamily]

I have created an Excel spreadsheet that mimics the tax return since 2014. For tax years 2014 to 2019, I have been exact with one exception; off by $1.00.

That is because the Excel spreadsheet does not round up or down. If I entered $4,546.89, I keep it. IRS and all tax software will store it as $4,547.

For tax year 2020, I am off by $30.00. My tax liability within my Excel spreadsheet states $X.00 and TurboTax states $X minus $30.00. So I am getting $30.00 more as a refund.

My taxable income does not hit any "fees"/"penalties"/etc. I have not crossed the SSI max amount either which is $8,537.40. Medicare does not have a max amount.

I understand the 10%, 12% and 22% tax brackets; which I used for taxable/ordinary income. I have qualified dividends, taxed at 15%.

I looked all entered values within Turbo Tax and the Excel spreadsheet; they are exact taking into account the "rounding up/down".

From previous posting, tax experts stated, some components are taxed at different rate. Can you explain which components are not taxed using the gradient scale, 10%, 12% and 22% for ordinary income and 15% for qualified dividends?

I think that Turbo Tax is using an incorrect deduction and/or tax bracket limits; ie 10% at $19,750.

If I have incorrectly thoughts of something, I would like to understand so I can expand my knowledge. I am not saying I am right. Just sharing my experience.

Thanks in advance

[CyclistFamily]

Updated information.  I believe in "baby steps".  So I copied my federal tax return file and started from the beginning, by just entering my only W-2.  I have income, employer paid life insurance, 401K contribution, HSA contribution and employer paid healthcare cost.  Basically entered whatever appeared on my W-2.

When I entered the W-2, the "income" under the federal review appears $3480.00 less.  Then when I entered the HSA worksheet, my "income" drops by the entered HSA.

When my Excel spreadsheet is manually adjusted by the Turbo Tax, everything matches.

Any guidance.

[BillM223 · Accepted solution]

First, I want to be sure that you are aware the qualifying dividends are taxed at 0%, 15% and 20%, depending on your income level. See the following (shamelessly stolen from Investopedia:(

In the case of qualified dividends, these are taxed the same as long-term capital gains, as of 2020, individuals in the 10% to 15% tax bracket are still exempt from any tax. Investors who fall in the middle brackets—25%, 28%, 33%, or 35%—pay 15% at most in capital gains. The highest earners, in the 39.6% bracket pay 20% in capital gains (plus 3.8% net investment income tax, per the Patient Protection and Affordable Care Act - see the table below).

OK, you probably know this and you know that based on your income, that the qualifying dividends are taxed at 15%.

Have you looked at the Qualifying Dividends and Capital Gains Worksheet (in your TurboTax output, if you print or PDF everything)? This describes how your tax is actually calculated when you have qualifying dividends. If you do have such dividends, then be sure to remove them from income when you calculate the regular federal income tax. This would be an easy way to overstate your tax.

"When I entered the W-2, the "income" under the federal review appears $3480.00 less.  Then when I entered the HSA worksheet, my "income" drops by the entered HSA."

Sorry, I don't understand this paragraph. The income under the federal review appears to be $3,480 less than what? Than what is on your spreadsheet? Or did you mean $3,480 more?

You may be experiencing something that people who watch the Refund Meter too closely experience.

If, for example, you had in box 12 on your W-2 with a code W the amount $3,480, then this amount was removed from Wages in boxes 1, 3, and 5 before your W-2 was printed.

However, the IRS considers your HSA contributions as taxable until you show that you had the proper HDHP coverage, which you di in the HSA interview.

So when you enter your W-2, your income appears to be too large by $3,480 (because it has been added to line 8 (Other Income) on Schedule 1 (1040). However, after you have entered you HDHP coverage in the HSA interview, that line 8 entry is removed so your adjusted gross income goes back down.

Is tis what you are seeing?

"So I am getting $30.00 more as a refund" - Can you tell us on what line you see this deviation? Is it line 16 on the 1040? Is the taxable income on line 15 what you expect?

[CyclistFamily]

Since IRS provided an extension, I have put this "issue" in the backburner.  I was not ignoring your reply.

Before having this Excel spreadsheet, when I entered each component of the tax return; I always calculated my refund amount at that point.  This ensures that I have entered the values correctly.  It was always a "game" for me too.

With your provided instructions, I realized for "my records" PDF document, I checked for the first time, all calculation worksheets.  Thanks....  That is how I was able to view the stated document.

I thought I verified the tax liability was correct for the qualified dividend and it seems it is not.  grrrr.  I have a mistake with my derived value.  I need to dig into the root cause.  Now I have something to work.

That calculation was working properly in previous years.  I need to simply the equation.  Many ways to ....

In previous years, the top value for the qualified dividends at 0% and 2nd tax brackets were the same.  So the incorrect formula was never seen.  Now this year, it has a difference and my incorrect formula has this issue.

I was careless because I never checked the calculated value of 15% x qualified dividends.  I would have seen this issue immediately.

Thanks for providing guidance to see that worksheet.