Qualified Dividends and Capital Gains not taxed until over $80,800

[jq_48]

I am trying to do my return for 2021 and noticed an unusually large tax bill.  I have just under $80,000 in Capital Gains and if I add Qualified Dividends I'm up to $88,000.  When I look at the Qualified Dividends and Capital Gains Tax worksheet, it seems like I'm being taxed on most of it, instead of getting the $80,800 "exemption" for filing as Married Filing Jointly.

Form 1040 Line 15 is $156,000, if I deduct the $80,800, net taxable income should be about $75,200, giving me a tax bill of about $9,000.  Instead Turbo Tax is saying $19,000!

[JamesG1]

We are unable to see your tax return or the Qualified Dividends and Capital Gains worksheet.

Qualified Dividends and Capital Gains worksheet segregates your income and taxes the income at the 0%, 15%, 20% and your ordinary tax rate.

Line 24 computes the tax per the tax tables on line 1.

Line 25 shows the total tax reported on your 1040.

What amounts are these lines reporting on your tax return?

[fanfare]

if you're in the sweet spot your capital gains tax is zero. but if you leave that area it is painful.

[jq_48]

Thank you.  I understand what lines 24 & 25 are reporting, and they are ~ $25,000 & $19,000.  The problem is that instead of my total tax being about $10,000 or so, it is being calculated at about $19,000.  I should only be taxed on the portion of Qualified Dividends and Capital Gains that are over the $80,800 threshold, and I'm being taxed on way more than that.

[jq_48]

Shouldn't be this painful!!

[Mike9241 · Accepted solution]

the short answer is that $88K of dividend and qualified capital gain income isn't taxed but it pushes your other income into a higher tax bracket and makes some of the capital gin taxable

$80,800 less $68,000 ordinary income = $12,800 gets taxed at 0

$156K less $88K capital gains is the net ordinary income of $68K which gets tax at the standadrard rates

$88K of capital gains less the $12,800 not tax or $75,200 gets taxed at 15%

$12,800  taxed at 0

$68K at about  $7.8K

$75,200 of taxable capital gains at 15% or about $11.3K

$12,800 + $68,000 +$75,200 = $156,000 in taxable income

now if you only had $88K of capital gains your tax would be zero

this is meant to illustrate that other income affects the taxes you pay on capital gains

with no capital gains the tax on $156K would be about $26K

[jq_48]

Thank you. I misunderstood the exemption, not realizing that the $80,800 threshold was ‘taxable income’, and not just capital gains.