Effective Tax Rate Confusion

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 So, from previous posts, it seem TT"s "Effective Tax Rate" is meaningless.  Unfortunate.

So, what is it that I look at to determine the tax bracket I'm in.  I see brackets that say for 2024, Single

11K-47K is 12%

 47K-100K is 22%.  

100-191K is 24%

So which line item in TT do I look at to determine the bracket?  Is it what they label "Taxable Income"?  Or something else?     

[baldietax · Accepted solution]

not sure what previous posts and confusion is

your tax is calculated progressively up these bands so you pay 10% tax on the first 11.6k of taxable income, then you pay 12% on whatever income is above 11.6k until 47k, then you pay 22% on any income above 47k to 100k etc.

if you have long term cap gains or qualified dividends those will get a different tax rate which is stripped out first.  See the "Qualified Dividends and Capital Gain Tax Worksheet" which does that math and then the residual taxable income which will go through the tax tables/calculation worksheet using these bands.  There may be other taxes/worksheets that drive your final tax liability, see Form 1040 line 16 onwards.

See the IRS tax tables for the calculations https://www.irs.gov/pub/irs-pdf/i1040tt.pdf

Your effective tax rate is an 'average' rate which is the result of all these different tax calculations and rates for different layers of your income; this would likely be lower than the highest bracket you hit during this process.

When thinking about what "tax bracket I am in" I suppose it's most helpful to know the highest bracket your income hits during the process and therefore the tax rate that would apply to any additional income.

[DawnC · Accepted solution]

Select your filing status from this TurboTax FAQ to see what tax bracket you're in and the formula for your 2024 federal income taxes. These formulas apply to taxable (not gross) income and don't factor in tax credits, such as the Earned Income Tax Credit or the Child Tax Credit.   

And here is another article that has more information on tax brackets and rates.  A progressive tax system means that tax rates increase as your taxable income goes up and your income enters a higher tax bracket.  This has you pay a greater rate of tax on each successive chunk of income.   Each chunk of income—income in a tax bracket—shows the percentage of tax you pay on that portion of your income.   This means whichever tax bracket you’re “in”, its rate won’t apply to your entire income unless your taxable income ends in the lowest bracket.

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Ok. Thanks.  I just know there are lots of “income”. Taxable, AGI, MAGI, something plus or minus something.     I was just hoping for a line item with “the” tax number to use when looking at what bracket I’m in so I can plan for next year.  

i’ll read more articles to see if Turbo Tax’s “taxable amount” is what I’d look at to get an idea of my bracket, and thus what I can do next year to stay in the same bracket without going too far over in income to bump me to another bracket.  

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I looked at Turbo Tax worksheets, and found what I was looking for. While I understand progressive taxing, I just wasn't sure if "Taxable Income" was the final number I needed to determine what bracket I am in.  I found a "Tax History" report in Turbotax, which actually lists the bracket, as well as AGI and some other numbers I was looking for to confirm my understanding of the brackets.

Thanks all!