The calculation of effective tax rate is not correct (way low). Effective tax rate is a simple calculation ((Total Tax / Taxable Income) x 100%). Some sources compute it based on AGI, so I'll show both. In either case, TurboTax's result doesn't line up with either.
TurboTax shows an Effective Tax Rate of 5.41% when my Total Tax is $23,282 and Taxable Income is $73,925. The correct result is 31.49%.
If using AGI ($137,370) as the denominator instead, the result is 16.95%.
What numbers does TurboTax use to calculate Effective Tax Rate? I can't figure it out and the discrepancy makes me a bit concerned about the overall integrity of the product.
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I figured out how TurboTax is calculating Effective Tax Rate, and it appears to be correct when figured against AGI. The issue is the "Total Tax" includes self-employment tax (FICA & Medicare) paid and the Effective Tax Rate excludes self-employment tax (correctly). Tax paid w/o self-employment tax is $7435, which is 5.41% of AGI.
Would be nice if the cover sheet summary reminded users that the Total Tax is not Income Tax but includes other taxes paid via the 1040 reporting process.
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