Interest Income

[jaywgleason]

I added $100 of interest income from a 1099-INT, and my "federal tax due"went up around $40.  That marginal rate implies an income of over $1,000,000 which is way way more than we made.  Please explain.  Thanks.

[MinhT1]

When you add $100 extra taxable income to your return, your tax liability will go up, but your income-based credits such as the Earned income credit could go down, resulting in a larger increase in tax due.

In short, the increase is not only due to the increase of your tax imputable to the extra income, but also on other factors on your return.

[scott18]

Hello Tax Expert,

I have the same situation. My last entry for my 2019 Turbo Tax was to enter interest income from a K-1 that I just received. After entering the interest from the K-1, my federal taxes due went up 39.7% of the amount of the interest from the K-1. I should be in the 35% tax bracket based on my taxable income.

I don't have any earned income tax credit. 

Why would this be? 

[ThomasM125 · Accepted solution]

There could be other credits on your tax return such as education, child care, or child tax credits that may be unfavorably impacted by adding additional income. Also, alternative minimum taxes, net investment taxes and other taxes are also sensitive to income adjustments.

TurboTax uses tax tables to calculate your tax, as opposed to using the tax rate schedules, so there may be a slight difference between your the taxes calculated using one method or the other.

To nail it down, you would have to print your return before the additional income was added and after to see what changed, then investigate as required. 

[jaywgleason]

Both expert answers are appreciated.  I tried the additional "print then research" tip from ThomasM125.

When I added the $100 investment income "A",  it increased the amount  of our (married-joint) Social Security that was taxable  by a value of "B".  The tax on the sum A+B is at the proper marginal  rate for our income level.

Issue solved.  Thanks.