Tax generated on Line 16 in error

[bob_trueman]

Tax of $4224 (Line 16) is too small for Taxable Income of $86,892 (Line 15).  That tax rate is 4.9% which is good for me, but I think is in error.  HELP!  Is there a bug in the program?  My software is supposedly up to date.

          bob_t

[VolvoGirl]

It depends on what kind of income you have, if you have capital gains or qualified dividends the tax is not taken from the tax table but is calculated separately from schedule D.  The tax will be calculated on the Qualified Dividends and Capital Gain Tax Worksheet.  It does not get filed with your return.  In the online version you need to save your return as a pdf file and include all worksheets to see it.

For the Desktop version you can switch to Forms Mode and open the worksheet to see it.  Click Forms in the upper right (upper left for Mac) and look through the list and open the Qualified Dividends and Capital Gain Tax Worksheet.

You can probably tell because the tax on 1040 will be less than the Tax Table

https://ttlc.intuit.com/community/forms/help/form-1040-line-11-amount-is-less-than-standard-irs-tax-...

[DoninGA]

Do you have Qualified Dividends or Capital Gains entered on your federal tax return? 

If so, the tax tables are not used.

The Qualified Dividends and Capital Gains Worksheet is used to calculate the taxes - https://www.irs.gov/pub/irs-pdf/i1040gi.pdf#page=35

Or the Schedule D Worksheet is used to calculate the taxes - https://www.irs.gov/pub/irs-pdf/i1040sd.pdf#page=16

[bob_trueman]

I went into the source of the tax on line 16 and the worksheet said "Capital Gains Tax Worksheet".  I got that worksheet from its.gov and filled it in longhand and got what looks like the correct answer of $10,693 which agrees with the Tax Table.  Line 16 result in Turbotax Deluxe came out as $4224.

[gitanes26]

Something similar happened to me - the tax due just seemed way too low.  I must have gone through the Qualified Dividends and Capital Gain Tax Worksheet (page 35 in 1040 Instructions) a dozen times thinking I made a manual error somewhere, or that there was some typo in the worksheet.

The confusion comes from just how we think.  If you have $100,000 in capital gains and capital gains are taxed at 15%, then you must owe $15,000 in taxes, right?  Wrong!  The first $80,000 in capital gains are actually tax-exempt, being taxed at 0%.  The $20,000 remaining are taxed at 15%, so you owe only $3,000 in taxes. 

From the IRS... https://www.irs.gov/taxtopics/tc409

"The tax rate on most net capital gain is no higher than 15% for most individuals. Some or all net capital gain may be taxed at 0% if your taxable income is less than $80,000.

A capital gain rate of 15% applies if your taxable income is $80,000 or more but less than $441,450 for single; $496,600 for married filing jointly or qualifying widow(er); $469,050 for head of household, or $248,300 for married filing separately."

This is one of those very rare situations where when something is too good to be true, it actually is true!

[colorfulcat]

I can't begin to say how relieved I am to have located this thread. I have run into a similar situation but before finding this explanation, I went through every figure and reworked my own worksheets with a fine-toothed comb, thinking I must have input something incorrectly. I stared at the "Qualified Dividends and Capital Gains Tax Worksheet," realizing it was a key, but it's over my head. I spent an hour calling Turbotax and the rep had me jump through hoops, clicking through items for a half hour but nothing changed. I was convinced the outcome  with such a small amount of tax could not be correct, but based on the information that's been shared here, hopefully it is.