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Level 2
posted Jun 7, 2019 4:58:19 PM

Qualified dividends and capital gain tax worksheet has flawed logic on line 18. It reduces the 15% bracket by subtracting other taxable income. How do I get this fixed?

This is not just a problem with Turbotax, the flawed logic is in the IRS worksheet included in the 1040 instructions.  I am attaching a hypothetical example of a completed worksheet.  As noted in my question, the flaw occurs on line 18 where you subtract line 17 (effectively taxable income that is not qualified dividends or capital gains ) from the 15% bracket threshold (in the example, $479,000 for married/filing jointly).  Following this example, there is a simple way to calculate the tax:  With $700,000 in both qualified dividends and capital gains, the tax should be: (a) 15% of $479,000, or $71,850 plus (b) 20% of the difference between $700,000 and $479,000, or $44,200 plus (c) the tax on $200,000 taxable income that is neither qualified dividends nor capital gains or $36,579.  The total tax should be $152,629 but the worksheet yields a result of $162,629.  The $10,000 difference is directly the result of the $200,000 that was subtracted in line 18 being taxed at 20% versus 15%.  While this is a hypothetical example, I have a real example on a return I am preparing with a similar result.

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1 Best answer
Level 15
Jun 7, 2019 4:58:23 PM

Sorry but this is the way the IRS has this set up from the beginning and it is correct ... QDCGT always takes the other non qualifying income into consideration to determine how much is to be taxed at which rate ... you cannot compute the tax in a vacuum ... if you disagree then talk to your congress person and get it changed. 

4 Replies
Level 9
Jun 7, 2019 4:58:21 PM

As Critter said, it is NOT a flaw in the worksheet.  It is how Congress wrote the law.  The $200,000 of non-capital gain income is taken FIRST into account when determining the 15% or 20% rate.

Level 15
Jun 7, 2019 4:58:23 PM

Sorry but this is the way the IRS has this set up from the beginning and it is correct ... QDCGT always takes the other non qualifying income into consideration to determine how much is to be taxed at which rate ... you cannot compute the tax in a vacuum ... if you disagree then talk to your congress person and get it changed. 

Level 15
Jun 7, 2019 4:58:24 PM

IRS QDCG worksheet from Form 1040 Instructions (2018) - <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-prior/i1040gi--2018.pdf#page=40">https://www.irs.gov/pub/irs-prior/i1040gi--2018.pdf#page=40</a>

Level 1
Aug 11, 2020 5:23:19 PM

IRS has a posting: Error in Tax Calculation in Schedule D Tax Worksheet (Form 1040), see it here https://www.irs.gov/forms-pubs/error-in-tax-calculation-in-schedule-d-tax-worksheet-form-1040

I'm having same issue for tax year 2019 and it's still a problem with Turbotax.  I'm assuming that Turbotax followed the logic used in IRS worksheet and has yet to change the software code. I've already spent too much time with Turbotax personnel to get resolution.