Marginal tax rate ?

[Xian2]

I am projecting the impact of social Security income , I have a finished tax return MFJ with taxable income 82k. when adding 10k for Social Security. I can see my income to go up by 10k, I can see my taxable income to go up by 8500 (which is correct in my situation)  , and the added taxes are 27% of the 8500, versus the 22% I would expect , I checked all other data, credits etc. that stayed all the same.... what am I missing why the added taxes are higher then the expected 22% increase

[xmasbaby0]

TAX ON SOCIAL SECURITY

Up to 85% of your Social Security benefits can be taxable on your federal tax return.  There is no age limit for having to pay taxes on Social Security benefits if you have other sources of income along with the SS benefits.  When you have other income such as earnings from continuing to work, investment income, pensions, etc. up to 85% of your SS can be taxable. 

 What confuses people about this is that before you reach full retirement age, if you continue working while drawing SS, your benefits can be reduced if you earn over a certain limit. (For 2017 that limit was $16,920 —for 2018 it was $17,040—for 2019 it was $17,640— for 2020 it is $18,240; for 2021 it is $18,960)  After full retirement age, no matter how much you continue to earn, your benefits are not reduced by your earnings; your employer will still have to withhold for Social Security and Medicare.

To see how much of your Social Security was taxable, look at lines 6a and 6b of your 2020 Form 1040

https://ttlc.intuit.com/questions/1899144-is-my-social-security-income-taxable

https://www.irs.gov/help/ita/are-my-social-security-or-railroad-retirement-tier-i-benefits-taxable

You need to file a federal return if half your Social Security plus your other income is $25,000 when filing single or head of household, or $32,000 when filing married filing jointly, $0 if you are filing married filing separately.

Some additional information:  There are 13 states that tax Social Security—Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia.  These states offer varying degrees of income exemptions, but four mirror the federal tax schedule: MN, ND,VT, and WV

[Xian2]

thanks for the quick answer, and the good info on taxing of Social Security

I checked lines 6a/6b and as expected income is 10k and taxable is 8500

I fully agree with that - but being in the 22% tax bracket I expect the tax to increase 8500*.22   - but it actually increased by 27% -- that is my question? taxable income is 90k, so I am not phasing out of any credits etc that I know of.. what is the explanation that the added tax is 27% and not 22% ?

[Critter-3]

Did you compare the return before and after you added the SS income to see where the change happened?  I suspect it may be on Sch 2 line 8. 

[Critter-3]

Also the tax rates are graduated not static ... look at the charts yourself to confirm the program is doing it correctly :  https://www.irs.gov/pub/irs-pdf/i1040tt.pdf

[Xian2]

THANKS Critter3 !

it was not on Sch2 , but your idea of comparing the before and after detail panned out!

turns out the key difference was on the cap gain detail worksheet

adding 10k in SS income in 22 Bracket was too simplified view

actually the 10k added income was taxed at lower 12% rate, but therefor it pushed out Capgains and taxed it 15% (instead of 0%) before and as such I ended up with a 27% marginal tax rate

Looking through the detail worksheet allowed me to identify the reasons

Thanks so much!