In solving an earlier problem, I added $1000 in interest income to see my marginal federal tax rate.
Using the Form 1040 Qualified Dividends and Capital Gain Worksheet, line 25, I compared the tax calculation before and after the added interest income. The resulting increase in the tax was $370, or 37%, implying I am in the 37% tax bracket. [NOTE: this is before calculating the Net Investment Tax.]
However, my AGI on Form 1040-SR (Line 33) is far below the $628,301 floor for the 37% tax bracket.
Why is my tax being calculated for the higher 37% tax bracket?
You'll need to sign in or create an account to connect with an expert.
that additional income may be kicking some of your capital gains from the 15% bracket to the 20% bracket
see if the worksheet before is 0 on line 21 and now there is an amount.
also, many other items on your return can be affected by more income - we can't see your return.
While it appears that you are not in the 37% tax bracket, it is not clear why the additional interest of $1,000 should generate additional tax owed of $370. Can you provide additional information regarding your other sources of income, and any tax credits you are receiving? With additional information, we may be able to provide a more detailed explanation.
When providing additional information, do not include any personal identifiable information.
that additional income may be kicking some of your capital gains from the 15% bracket to the 20% bracket
see if the worksheet before is 0 on line 21 and now there is an amount.
also, many other items on your return can be affected by more income - we can't see your return.
Hi, Mike9241,
My cap gains were already more than enough to get the 20% treatment.
And if some other income/deduction interaction is the culprit, I doubt that would result in exactly 37.0% marginal tax, vs the 35% I think it should be.
I get the same result when I add non-investment income (e.g., non-penalty IRA withdrawal) -- 37.0% additional tax (before other taxes/penalties). My AGI is $100K below the 37% bracket floor.
Hi GeorgeM777,
I repeated my experiment, using $1000 in an IRA withdrawal (I am over 60) to avoid Net Investment Income impact. (Form 8960 is using my actual investment income for its calculations, so the extra $1000 has no impact there.)
1. My only deductions/credits are the standard deduction and the $600 charitable gift deduction.
2. My income includes employment income (I retired in 2021), Social Security, pensions, interest & dividends & cap gains, and a partial IRA -> Roth conversion.
3. I also have income tax withholding on the employment income and pensions, plus a sizable estimated tax payment.
I have concern that the additional tax calculation in TT is exactly 37.0%, when my AGI is $100K below the 37% bracket floor. If the issue were due to other tax/income/credit interactions, I do not believe the rate discrepancy would be precisely 2.0%.
Added data points:
1. I eliminated my under-withholding penalty
2. Adding a $1000 IRA withdrawal increases my federal tax due by $370
3. Instead, adding a $10,000 IRA withdrawal increases my federal tax due by $3700
4. TT shows my AMT is $0.
My AGI is still far below the 37% tax bracket floor, so it looks to me as if TT is using the wrong tax calculation. I hope that is not true, but I have no other explanation at this time.
Mike9241, you nailed it again.
Still have questions?
Make a postAsk questions and learn more about your taxes and finances.
kensley162--
New Member
Richard137
New Member
rpmm
New Member
emma1189
New Member
frank g1
New Member
Did the information on this page answer your question?
You have clicked a link to a site outside of the TurboTax Community. By clicking "Continue", you will leave the Community and be taken to that site instead.