1099INT Increases tax burden too much

[Ron045]

I have a very simple return.  A W2 and a 1099INT.  After entering my W2 my return was $376.  Then after entering a 1099INT for $10, the return dropped by $6 to $370.  How could $10 of interest increase taxes by $6?

Also, for the heck of it I changed the 1099INT to $1 and it still reduced my return my $6.

Something does not seem right?  Any ideas?

[JohnB5677]

This certainly sounds like there is more at play here than simple income tax.  I don't see what software you're in, but I'll proceed as if you are online.

I'd like to first check out your actual tax return.

• If you haven't paid for it you will not be able to print things, but you can see them.
• You will have to write down the numbers that come up, and then compare them.
• I'd like you to initially post the numbers without the interest.
• I'll give you some key numbers to write down.
• Then enter the interest, and compare the numbers.

You can preview your tax return by going to:

1. On the menu bar on the left that shows.
   1. My Info
   2. Federal
   3. State
   4. Review
   5. File
2. Select Tax Tools
3. On the drop-down select Tools
4. On the popup menu
5. Select View Tax Summary
6. On the left sidebar
7. Select Preview my 1040.
8. Schedules 1,2&3 are included if you scroll down past your 1040.
9. To return to the entry screens press Back on the sidebar.

Some key numbers on your 1040 tax return are:

Line 15 - Taxable Income

Line 24 - Total Tax.

Line 25 - Withholdings.

Line 33 - Payments including Credits.

Line 34 - Overpayments.

Line 37 - Tax owed.

If you compare these numbers, it may give a clue as to what is going on.

Please write back and try to pinpoint where the numbers had changed.

[SteamTrain]

@Ron045 

For low incomes, (below 100,000 of taxable income) the tax tables are used.

And the tax tables work in $25 ranges for lower incomes (taxable income below $3001 )

....and in $50 increments for taxable income from $3001 up to 99,999.

IF you change your ordinary income, anywhere within that range...there is no tax increase...but if you are right at the borderline to the next range, a $1 increase can up your tax anywhere from $1 to $3 (below $3001 of taxable income

..or $5-to-$12 for taxable incomes being between $3,001 and 99,999.

______

It sounds to me like you are in that borderline situation....but the next ~$39-40 of added income (above the $10 already entered) should not change your tax any more.....but much more than that, and yoru tax will rise again.

[Ron045]

With the 1099 INT entered. $10.41

Line 15 - Taxable Income - 38,259

Line 24 - Total Tax. - 4388

Line 25 - Withholdings. -  4758

Line 33 - Payments including Credits. - 4758

Line 34 - Overpayments. - 370

Line 37 - Tax owed. -  0

Without the 1099 INT entered. 

Line 15 - Taxable Income - 38,249

Line 24 - Total Tax. - 4382

Line 25 - Withholdings. -  4758

Line 33 - Payments including Credits. - 4758

Line 34 - Overpayments. - 376

Line 37 - Tax owed. -  0

[Mike9241]

your income is low enough so by law the tax tables are used.    say you're single with 20045 of taxable income - before the interest with nothing special your tax is 2198. now you add the interest income. that pushed your taxable to 20055 which puts you onto the next rung in the tables. the tax on this 2204, a $6 increase on $10 of income.  happens often. it's even possible for $1 more of taxable income to increase your tax $6. 

[Ron045]

So I found the answer in the tax table... But you good folks helped me get there.  I just tried a manual 1040 EZ.

At Least   But not Over   Tax Due

38,200     38,250             4,382  
38,250     38,300             4,388

The taxable income without the 1099 is $38,249.  With the 1099 of $10 the taxable income increases to the next level.

$6 Tax on $10 Interest.  60%.  BS.  We need an overhaul of the system.

[SteamTrain]

Well, the tax tables are meant for making things easier for those using paper forms to just look it up.

Otherwise, people would be left with making ridiculous computations themselves....like x% on the first 10,000, then, plus x+% on the next 20,000 plus x++% on the next 40,000...etc....  then there are the inherently math challenged folks, who couldn't make such computations no matter how "simplified".  

[Ron045]

More reason to dissolve the IRS and all the exemptions.  Flat Tax of 18% for EVERYONE.  No deductions, no credits.  If everyone paid the exact same percentage of what they earned, then that would be fair for all.  No math involved.  It comes out of your paycheck and you never see it again with no further action.