Federal Tax Liability Calculation incorrect

Forum|Forum|1 year ago
January 27, 2025
3 replies
26 views

My tax liability shows a blended tax rate of 24.3% which is much higher than what is shown on the Tax calculation sheet. The calculation should be 24% of the taxable income minus a dollar amount which is lower than 24.3%. How can my tax liability be corrected?

VolvoGirl

Level 15

There are like 7 different ways to calculate the tax.
It depends what kind of income you have. Even though the full amount shows up in the total income on the 1040 line 7, if you have capital gains or qualified dividends the tax is not taken from the tax table but is calculated separately from Schedule D. The tax will be calculated on the Qualified Dividends and Capital Gain Tax Worksheet. It does not get filed with your return. In the online version you need to save your return as a pdf file and include all the worksheets to see it.

For the Desktop version you can switch to Forms Mode and open the worksheet to see it. Click Forms in the upper right (upper left for Mac) and look through the list and open the Qualified Dividends and Capital Gain Tax Worksheet. And you will need to use this IRS worksheet on page 15.
https://www.irs.gov/pub/irs-pdf/i1040tt.pdf

IRS Qualified Dividends and Capital Gain Tax Worksheet—Line 16 on 1040 instructions page 37
https://www.irs.gov/pub/irs-pdf/i1040gi.pdf

And you might need IRS Tax Table page 15 to calculate the tax and to compare to Turbo Tax. That isn't shown in Turbo Tax.
https://www.irs.gov/pub/irs-pdf/i1040tt.pdf

plsumner1Author

Level 2

For clarification, I am using Turbo Tax. The tax liability in Turbo Tax is more than was calculated using Firm 1040. The review showed the 2023 calculations which were very similar to 2024 but tax liability increased by 10k. There were no dividends or other income change.

DianeW777

Level 15

A blended tax rate, also known as the effective tax rate, is arrived at by any number of factors. The effective tax rate for individuals is the average rate at which their earned income, such as wages, and unearned income, such as stock dividends, are taxed. If you received income from a variety of things like stocks and bonds, interest, dividends, wages or self-employment, this may all play a role in determining your blended tax rate.

It's a calculation based on overall income and the amount of tax calculated on the tax return and is not specifically a marginal or capital gains tax rate. The tax is calculated on a graduated scale which also creates some confusion. Each separate amount of income is taxed at the various tax rates. For 2024, TurboTax is using that income for calculations.