Do Dividend Income and Capital Gain Income increase which Ordinary Income tax bracket we are in?

[Think57]

Ordinary Income such as IRA RMD, Taxable Annuity Income, Interest, etc)

$150,000

Qualified Dividend Income

$30,000

Long Term Capital Gains

$30,000

For our Ordinary Income, for 2024, is our marginal Ordinary Income Tax bracket 22% or 24%?

Trying to understand if Qualified Dividend Income and Long Term Capital gains get added to our Ordinary Income to determine the marginal tax bracket for our Ordinary Income.

Understand that Qualified Dividend Income and Long Term Capital Gains tax rates are determined by our total income.  However, are those brackets marginal or "cliff" (like the IRMAA).  As in for 2024, if our total income crosses $94,050, is all of our 2024 long term capital gains taxed at 15%, or is a portion of that long term capital gain still taxed at 0% (not sure that would be calculated if that is the case).  Similarly for Qualified Dividends.

Thank you in advance as I try to understand this in trying to figure out how much Estimated Tax to pay in January 2025 for our 2024 taxes.

[Bsch4477]

While these calculators are for 2023 they should give you a good approximation answer your questions. 

https://turbotax.intuit.com/tax-tools/calculators/self-employed/?srsltid=AfmBOoohvFL7CuPE8y-frMAulwy...

[Think57]

Thanks Champ.  Took a look and seems it is not answering what I am trying to understand.  Let me try another angle:  The "Annual Taxable Income" used by the Tax Bracket Calculator to calculate the marginal tax rate, does it include Dividends and Capital Gains?

Asking because we know that the tax rates for Ordinary Income are not applied to Dividend and Capital Gains income as the latter two have a separate set of brackets for determining the income tax on those earnings.  So are the tax rates for Ordinary Income, as set forth in the "brackets", only determined by the amount of Ordinary Income we have?

Again, thanks in advance, Think57

[VolvoGirl]

Will this help?   The tax rate for qualified dividends and long-term capital gain is based on your total taxable income, including the capital gain. It's the taxable income on Form 1040 line 15.

See this discussion,
https://ttlc.intuit.com/community/after-you-file/discussion/capital-gain-tax-for-married-filing-join...

[rjs · Accepted solution]

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.

[rjs]

You said you're trying to calculate how much estimated tax to pay in January. Instead of trying to do all the complicated calculations now, it would be much simpler and easier to wait until the TurboTax software for 2024 is available. You can then use TurboTax to do a preliminary calculation of your 2024 tax. The preliminary desktop TurboTax software will be available for download in mid to late November, and TurboTax Online will be available in early December. That still gives you plenty of time to calculate how much to pay in January.

[Think57]

Thanks rjs.  This is what I was looking for.  It will take some time to work through this material, however, I can see that what you shared will allow me to understand what I have been picking at this last week or two.  And also thanks for your suggestion to use the preliminary version of Turbo Tax for 2024 taxes to estimate my taxes.  However, having already set up a "pro forma 2024 income tax" file using Turbo Tax for 2023 with my 2024 income estimates, will continue using it knowing that the tax brackets have been adjusted for the 2024 tax year.  Thanks again, Think57.