Why $1000 increase on interest results $458 tax increase

[Clivia]

Hello, I increased income $1000, the tax increase is $458.  tax bracket $35%+3.8%(investment tax)+0.9%(Medicare tax)=39.7%, not 45.8%. Anybody knows the reason, thanks.

[rjs]

Adding income to a tax return can have side effects besides the direct tax on the added income. The increase in income could reduce or eliminate various deductions or credits that are not related to the income that was added, but that have income-based limits or phase-outs. If you received Social Security benefits it could make more of your Social Security taxable. You have to compare your entire Form 1040 line by line before and after adding the interest to see what else is changing besides the amount of interest. If there's a change in an amount that comes from another form or schedule, you have to look at that form or schedule to see what's happening.

[Clivia]

Thank you very much.

[baldietax]

also check for penalty it that is included in this figure, if the additional income is not covered by estimated taxes that may contribute given the 8% underpayment rate

[MonikaK1]

For Federal income taxes, the tax rate brackets for 2024 are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. To see how the tax brackets apply to you for this year, and for a tool to determine your marginal (the highest part of your income) tax rate, see here.

Also, note that taxes are often calculated using a different method than the tax tables. For example, if you have capital gains, the tax on those is calculated at the capital gain rate for your income level. If you are self-employed, you may have self-employment taxes in addition to income taxes.

See this help article for more information.

You can also preview your return before filing to find out how your taxes were calculated. See here for details. 

@Clivia