It appears that the tax calculations in the software are wrong. I added $13 of income and my tax liability went up by $12! When will Intuit fix the tax tables?

[vinson10221]

I am in the 24% bracket.

[VolvoGirl]

That can happen.   I once added $6 in interest and the tax went up $12! It pushed me into the next tax bracket. I was right at the line.  Look up your taxable income in the tables and see how the tax jumps.

https://www.irs.gov/pub/irs-pdf/i1040tt.pdf 

And adding more income can reduce some credits you may qualify for.  Many things can change.

[vinson10221]

Thanks VolvoGIrl but that is not the problem. First of all, going into a “higher tax bracket” just affects the additional income, not the income which was in a lower bracket. A common misunderstanding. Whether this additional money was in the 22% or 24% bracket would not generate an increase of $12 in tax on $13 of income.

Second, I understand that a change in income can result in a loss of deduction or credits. That did not happen here. I added $13 of income, my taxable income went up by $13. My tax went up by $12.

Bottom line - TurboTax has a programming error. Their tax calculation without the $13 was a few dollars too low,. Their tax calculation with the $13 was a few dollars too high. Those two error compounded to result in the $13 having a 92% marginal tax rate.

The program can’t seem to do simple math.

[DoninGA · Accepted solution]

Use the amount shown on Line 15 of your federal tax return and check the results using the IRS 2021 Tax Computation Worksheet in the instructions for Form 1040 on page 77 - https://www.irs.gov/pub/irs-pdf/i1040gi.pdf#page=77

[vinson10221]

Thank you DoninGA. I forgot the that tax tables goes by $50 increments rather than using the actual formula set forth in the Internal Revenue Code. The tax table is mandatory for income under $100,000. That is what caused the jump in my tax liability. I am being taxed as if I had an additional $50 of income, rather than the actual additional $13 of income.

IRC 3(a)(1) gives the IRS the right to prescribe tax tables but goes on the say: "In the table so prescribed, the amounts of the tax shall be computed on the basis of the rates prescribed by section 1." Since under the tables, $1 of additional income could result in $12 of additional tax, a marginal rate I don't find in the Code, hard to see how that is computed "on the basis of the rates prescribed by section 1."

I guess I could file in tax court for a $9 refund and see what happens. A fun way to spend my golden years as a retired tax lawyer.

[VolvoGirl]

Isn't that what I said?

[myraccoon]

Seems that I'm getting a calculation error as well on Home and Business.  My taxable income is 31430. But the Tax is 2724.  That can't be based on the Tax tables.  I can't make sense of it.

[VolvoGirl]

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.

Plus if you have self employment income you owe Self Employment tax on it in addition to regular income tax.  

[myraccoon]

Thank you very much VG.  I see it in the worksheet's calculations.

[elle180]

I'm using the download of Home & Business.  The software has calculated an 18% tax rate on taxable income of $24K!  Only 30% of my income is 1099 related all other qualifies for a regular rate. I did not anticipate this gross miscalculation when selecting TurboTax. Tried to call tax support - closed till Monday. Any suggestions or similar issues with incorrect rates? Thnx

[vinson10221]

My issue was resolved. My income for the year put me in the tax tables rather than applying the tax bracket to the additional income. My one dollar of income was taxed at a high rate because it was taxed in the next tax table grouping rather than the tax bracket. 

hope that helps.