Why is Box 3 on the 1099-INT from Treasury Direct taxed at a 42% rate?

[Labutin]

TurboTax shows a federal tax due of $675.

When I manually enter a 1099-INT from Treasury Direct, where Box 3 reports $2,460, the federal tax due increases to $1,705.

Is my calculation correct?

(1705 - 675) / 2460 = 41.87%

Does that seem right?

My total income is in the $243,726 - $609,350 range (Married Filing Jointly).

[MinhT1]

Without looking at your tax return, I cannot give you an accurate reply to your question.

However, I can see one main reason. The interest reported in box 3 of your form 1099-INT is subject to the Net Investment Income Tax (NIIT) of 3.8%, on top of your income tax at the marginal rate of 35%.

Please read this IRS document for more information.

Also, certain tax credits may have changed with the increase of your AGI.

[Labutin]

Ok, my W-2 exceeds $250,000 and I need to pay NIIT 3.8%.

And AGI is far away from $609,350. The tax rate must be 35%. Total is 38.8%.

38.8% from $2,460 is $954.48, less than $1,705-$675=$1,030, which Turbotax adds to my taxes.

Actually, I played with numbers in Box 3, and I see the following picture.

Box 3     Additional tax     Rate

$100       $35                     35%

$500       $229                   45.8%

$1000     $408                   40.8%

$2000     $816                   40.8%

$2500     $1045                 41.8%

$3000     $1224                 40.8%

$3500     $1453                 41.51%

$4000     $1632                 40.8%

$4500     $1860                 41.3%

$5000     $2040                 40.8%

The numbers look wrong. Is it a bug in Turbotax?

[ThomasM125]

There may be other things on your return besides your taxable income that are affected when you add additional income. For instance, you may be subject to alternative minimum tax or you may have credits or deductions that are sensitive to increases in your income. You will need to compare your form 1040 before the additional income is added and after to see what changes in addition to your taxable income and income tax. 

Also, you can look at the Tax Smart Worksheet and other tax worksheets like Qualified Dividends and Capital Gain Tax Worksheet to see how your tax is calculated. You'll be able to see them when you pay for your TurboTax return:

To view your form 1040 and schedule 1 to 3:

1. Choose Tax Tools from your left menu bar in TurboTax Online while working in your program
2. Choose Tools
3. Choose View Tax Summary
4. See the Preview my 1040 option in the left menu bar and click on it
5. Choose the Back option in the left menu bar when you are done 

[dcanniz1]

I have the same exact question, I hit the higher tax bracket and expected 37% of my INT, but it was 42.6%  even if you add in NIT, it is still 2 to 3% more?  something feels off, anyone have more insight? much appreciated. 

[KeshaH]

It could be a variety of things working together.

If you'd like, we can look at your return and see exactly what you see to  help come to a resolution. The return will be scrubbed and won't include any of your personal details.

If you're using TurboTax Online:

Once you're logged in to your account,

- on the left hand panel, click on Tax Tools and then choose Tools

- on the pop up window, select Share my file with Agent

- you'll see a message saying you'll give us a copy of your tax return. Your personal information will be changed so we can't see any private information.

- click okay and you'll get another message with a token

If you're using TurboTax Desktop:

• Click on Online in the top menu of TurboTax Desktop for Windows
• Select 'Send Tax File to Agent'
• Write down or send an image of your token number and state then place in this issue.
• We can then review your exact scenario for a solution

Please reply to this message with your token so that we can further assist you. Let us know all the states, if any, that are included on the return.

@dcanniz1