Solved: How turbotax calculated my effective tax rate (ETR). It divides line 63 amount by line 43 amount on the 1040 form?Line 63: $40,305, Line 43 $120,516 So, why ETR is 14.51%
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New Member

How turbotax calculated my effective tax rate (ETR). It divides line 63 amount by line 43 amount on the 1040 form?Line 63: $40,305, Line 43 $120,516 So, why ETR is 14.51%

 
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Level 15

How turbotax calculated my effective tax rate (ETR). It divides line 63 amount by line 43 amount on the 1040 form?Line 63: $40,305, Line 43 $120,516 So, why ETR is 14.51%

Bill is absolutely correct concerning the effective tax rate being meaningless.  And the program is using Line 37 for income and Line 47 for tax plus a bunch of qualifiers.

From the TurboTax desktop On Demand Tax Guidance for 2016 -

"Effective Tax Rate:

Effective tax rate - year 2016

Effective tax rate is computed based on the ratio of tax to income.

Income is the adjusted gross income from Form 1040, line 37. However, if there are lump-sum distributions from qualified retirement plans and special averaging or capital gain treatment is selected on Form 4972, the taxable amount of the distributions is added to the adjusted gross income. Also, if the distributions include net unrealized appreciation in employer's securities, and the option is selected on Form 4972 to include this in the tax calculation, the amount of the net unrealized appreciation is also added to the income.

Tax is calculated starting with the tax on line 47 of Form 1040, including the alternative minimum tax, but not including the recapture tax from Form 8863 (Education Credits) or the tax from the IRC Section 197(f)(9)(B)(ii)election for an additional tax. It does include the tax from Form 8814 and Form 4972. The smaller of the nonrefundable credits shown on line 55 of Form 1040 or the remaining tax is then subtracted. The other taxes shown on lines 57 through 61 on Form 1040 are not added to the tax. Finally, the Fuel Tax Credit from Form 4136, the Child Tax Credit from Schedule 8812, the refundable portion of the American Opportunity Credit from Form 8863, the Net Premium Tax Credit from Form 8962, the Health Coverage Tax Credit from Form 8885, the Credit for U.S. Tax Paid to the Virgin Islands and the Earned Income Tax Credit are subtracted. Note that these credits are refundable tax credits.

The effective tax rate is the tax divided by the income. Because of the refundable credits, the resulting net tax could be negative if the amount of these credits is greater than the tax liability. As a result, a negative effective tax rate is possible.

If the income as defined above is zero or less, the effective tax rate is set to zero."

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Level 9

How turbotax calculated my effective tax rate (ETR). It divides line 63 amount by line 43 amount on the 1040 form?Line 63: $40,305, Line 43 $120,516 So, why ETR is 14.51%

Effective tax rate means absolutely nothing, and TurboTax just confuses users by mentioning it.

I suspect TurboTax is using INCOME taxes, rather than all taxes (penalties and SE tax).  So it may use the tax on Line 47 or 56, and it may use income on Line 38 or 43 (I suspect it would use AGI on Line 38).
Level 15

How turbotax calculated my effective tax rate (ETR). It divides line 63 amount by line 43 amount on the 1040 form?Line 63: $40,305, Line 43 $120,516 So, why ETR is 14.51%

TurboTax appears to calculate what it terms Effective Tax Rate by dividing the amount on Form 1040 line 56 [income tax after credits] by the amount on line 37 [AGI].  Meaningless.

New Member

How turbotax calculated my effective tax rate (ETR). It divides line 63 amount by line 43 amount on the 1040 form?Line 63: $40,305, Line 43 $120,516 So, why ETR is 14.51%

This is all mumbo jumbo! The real world "effective tax rate" is the TOTAL amount I paid the government divided by my TOTAL income.  Line 63 divided by line 22 X 100
New Member

How turbotax calculated my effective tax rate (ETR). It divides line 63 amount by line 43 amount on the 1040 form?Line 63: $40,305, Line 43 $120,516 So, why ETR is 14.51%

Why even list the effective tax rate if it is confusing and meaningless.  Just list the correct percentage that is paid on the taxable income.  Remove this from your program.
New Member

How turbotax calculated my effective tax rate (ETR). It divides line 63 amount by line 43 amount on the 1040 form?Line 63: $40,305, Line 43 $120,516 So, why ETR is 14.51%

Please, either correct the methodology or eliminate the line on the Tax Summary.  It is misleading and incorrect.
New Member

How turbotax calculated my effective tax rate (ETR). It divides line 63 amount by line 43 amount on the 1040 form?Line 63: $40,305, Line 43 $120,516 So, why ETR is 14.51%

Totally confusing!
New Member

How turbotax calculated my effective tax rate (ETR). It divides line 63 amount by line 43 amount on the 1040 form?Line 63: $40,305, Line 43 $120,516 So, why ETR is 14.51%

If Turbo Tax cannot calculate the effective tax rate (Total Tax/AGI), then I am concerned about errors in the more complicated tax computations.  Turbo Tax reported an effective tax rate of 6.17%, when actual tax rate is 17.55%.  Please fix this error!
Level 15

How turbotax calculated my effective tax rate (ETR). It divides line 63 amount by line 43 amount on the 1040 form?Line 63: $40,305, Line 43 $120,516 So, why ETR is 14.51%

Bill is absolutely correct concerning the effective tax rate being meaningless.  And the program is using Line 37 for income and Line 47 for tax plus a bunch of qualifiers.

From the TurboTax desktop On Demand Tax Guidance for 2016 -

"Effective Tax Rate:

Effective tax rate - year 2016

Effective tax rate is computed based on the ratio of tax to income.

Income is the adjusted gross income from Form 1040, line 37. However, if there are lump-sum distributions from qualified retirement plans and special averaging or capital gain treatment is selected on Form 4972, the taxable amount of the distributions is added to the adjusted gross income. Also, if the distributions include net unrealized appreciation in employer's securities, and the option is selected on Form 4972 to include this in the tax calculation, the amount of the net unrealized appreciation is also added to the income.

Tax is calculated starting with the tax on line 47 of Form 1040, including the alternative minimum tax, but not including the recapture tax from Form 8863 (Education Credits) or the tax from the IRC Section 197(f)(9)(B)(ii)election for an additional tax. It does include the tax from Form 8814 and Form 4972. The smaller of the nonrefundable credits shown on line 55 of Form 1040 or the remaining tax is then subtracted. The other taxes shown on lines 57 through 61 on Form 1040 are not added to the tax. Finally, the Fuel Tax Credit from Form 4136, the Child Tax Credit from Schedule 8812, the refundable portion of the American Opportunity Credit from Form 8863, the Net Premium Tax Credit from Form 8962, the Health Coverage Tax Credit from Form 8885, the Credit for U.S. Tax Paid to the Virgin Islands and the Earned Income Tax Credit are subtracted. Note that these credits are refundable tax credits.

The effective tax rate is the tax divided by the income. Because of the refundable credits, the resulting net tax could be negative if the amount of these credits is greater than the tax liability. As a result, a negative effective tax rate is possible.

If the income as defined above is zero or less, the effective tax rate is set to zero."

View solution in original post

New Member

How turbotax calculated my effective tax rate (ETR). It divides line 63 amount by line 43 amount on the 1040 form?Line 63: $40,305, Line 43 $120,516 So, why ETR is 14.51%

From: https://www.investopedia.com/terms/e/effectivetaxrate.asp

  For an individual: ETR = Total Tax ÷ Taxable Income

 

Definitely not what I am seeing from Turbo Tax return summary.  I suggest Turbo Tax either fix this calculation or stop referring to this strange calculation as Effective Tax Rate....as you are totally confusing your user base with some meaningless number which seems to be much lower than it should be (giving users a false belief that their ETR is very low)

New Member

How turbotax calculated my effective tax rate (ETR). It divides line 63 amount by line 43 amount on the 1040 form?Line 63: $40,305, Line 43 $120,516 So, why ETR is 14.51%

The community states that Turbo Tax calculates effective tax rate by dividing line 63 by line 43 on the 1040.  Really???  Line 43 and 63 do not exist on the 2020 1040 form, so where are they getting this information?

Employee Tax Expert

How turbotax calculated my effective tax rate (ETR). It divides line 63 amount by line 43 amount on the 1040 form?Line 63: $40,305, Line 43 $120,516 So, why ETR is 14.51%

I do not know where they are getting that information however, you can find your effective tax rate at the bottom of your 2-year comparison.  It is also stated on the TurboTax Filing Instructions page if you print a copy of your return.  

 

It's possible to calculate your effective tax rate by looking at the Form 1040 and dividing the number on line 16, the "Total Tax," by the number on line 11(b), the "Taxable Income." 

 

Over the years there use to be times when TurboTax calculated this rate on the return but not so much now.

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