If my gross income did not change, why did my taxable income increase by $9,000?

[BillM223]

There are a number of possibilities:

1. You made a typo

2. The tax law changed

3. You have forgotten to enter a form that you had last year (or you forgot to enter that form last year but did this year)

4. Your withholding changed (because of tax law changes, the IRS has been updating the withholding tables)

5. Change in filing status or number of dependents

6. Many other possibilities

If you used the TurboTax Live service and asks that question of the tax professional, the first thing he/she would do is to take your 2019 and 2020 returns and look for differences. Frequently, the cause of the difference jumps out at you, which will direct you to the place where you made the input.

Once there, you will either understand the cause, or you will come back to us and ask us why the change here in the Community.

Remember that we in the Community cannot see your private tax data, so we know only what you tell us.

[kvnsper12]

Do you know if the tax law changed in regards to pension and/or social security, as that is the only income that I receive? @BillM223 

[BillM223]

First, are you speaking of federal or state taxable income?

Second, sometimes the following occurs.

A taxpayer has Social Security. As you probably know between 0% and 85% of your Social Security is taxed, based on a formula. 

The amount that is taxed largely depends on how much "outside income" you have, that is, income that is not Social Security.

The IRS describes how you calculate this percentage starting on page 61 of Pub 17.

If you took a larger pension distribution in 2020 than in 2019, then you might find that a larger percentage of the Social Security income is taxable, that is, your taxable income would increase more than just the increase in the pension.

You should be able to see this by looking at lines 6a and 6b on the 2019 and 2020 1040. Did line 6b increase noticeably from 2019 to 2020? Then this is the result of outside income, like your pension or IRA distributions.

In addition, the amount of your pension that gets taxed may vary. If you made any after-tax contributions to your pension while working, then these are returned to you in each monthly payment according to an actuarial formula. These amounts of after-tax contributions (called cost or basis) are not taxed.

If you changed your answers on the Simple method of determining cost in the pension (this happens in the interview after you enter the 1099-R), then the amount of pension income that is taxed may change sharply.

Please compare the numbers on your 1040 from 2019 and 2020 and see where the big change is.