Tax Bracket

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I have entered my data for Tax Year 2021 to TurboTax and wanted to verify the tax brackets I am in as I often did.

Based on my total income, my tax brackets should be 24% for ordinary income and 15% on long-term capital gain tax. However, instead I found the two marginal rates being 25.8% and 18.8%, respectively, by subtracting/adding $1,000 from/to either a short-term capital gain (or ordinary dividend or interest income) or a long-term capital gain (or qualified dividend).

Is it possible that TurboTax has some errors in the calculations?

Can someone help? Thank you!

RaifHAnswer

Alumni - Intuit

You may be subject to the net investment income tax. This is an additional tax of 3.8% on capital gains if your income is over $250,000 if you're married filing jointly, $125,000 if filing separately, or $200,000 for any other filing status.

This tax is reported on Line 12 of Schedule 2. To preview your tax return:

Open or continue your return.
Select Tax Tools in the left menu (if you don't see this, select the menu icon in the upper-left corner).
With the Tax Tools menu open, you can then view your 1040 form: Select Tools. Next, select View Tax Summary in the pop-up, then Preview my 1040 in the left menu
Scroll down until you see Schedule 2.

RaifHAnswer

Alumni - Intuit

This tax is reported on Line 12 of Schedule 2. To preview your tax return:

Open or continue your return.
Select Tax Tools in the left menu (if you don't see this, select the menu icon in the upper-left corner).
With the Tax Tools menu open, you can then view your 1040 form: Select Tools. Next, select View Tax Summary in the pop-up, then Preview my 1040 in the left menu
Scroll down until you see Schedule 2.

georgeturlockAuthor

Level 2

Dear RaifH,

Thank you so much for pointing out the NIIT!

So in another word, the commonly referenced Long-term Capital Gains tax table has become obsolete now in that it should include another bracket for 18.8% for MAGI above $250k (for Married Filling Jointly, below the mark when the 20% rate kicks in).

Please let me know my understanding is incorrect.

Best regards!

RaifH

Alumni - Intuit

Not quite. It is a separate tax that is only assessed on capital gains above the threshold. It's a little hard to put into words so maybe some examples would help:

You are married with $150,000 ordinary income and $150,000 capital gains. $100,000 of your capital gains would be taxed at 15% and $50,000 would be taxed at 18.8%.

You are married with $250,000 ordinary income and $50,000 capital gains. In this case, the entire $50,000 capital gains would be subject to both the 15% capital gains rate and the 3.8% NIIT.

So depending on the source of your income, you may pay the NIIT on all your capital gains or only a portion of them. It does not quite fit neatly on the capital gains tax rates tables that you see everywhere, although you might find it somewhere in the small print.