Tax Bracket Question

[roob1]

My taxable income fell in 22% bracket. Yet HR Block tax software indicated my total tax owed at about 15% of my taxable income. I took the standard deduction only. What am I missing?

[onfire]

You don't pay 22% on your entire income, so 15% sounds correct.

Example using 2024 brackets.
10% on $11,600
12% on the portion $11,601 to $47,150
22% on the amount over $47,150 (up to $100,525)

https://equitable.com/tax-strategies/tax-calculators/estimate-your-effective-tax-rate

[JamesD]

As an HRB user I'll take a stab at this. I assume you are talking 2024?
In USA we enjoy a progressive income tax structure. The more you make, the more you pay.
Your first taxable 23k is taxed@10%
Your next taxable 70K is taxed@12%
Your next taxable 106K is taxed@22%

I think you are seeing an average.

I could be wrong. But my answer is worth the price you paid.

[retiredguy123]

As an HRB user I'll take a stab at this. I assume you are talking 2024?
In USA we enjoy a progressive income tax structure. The more you make, the more you pay.
Your first taxable 23k is taxed@10%
Your next taxable 70K is taxed@12%
Your next taxable 106K is taxed@22%

I think you are seeing an average.

I could be wrong. But my answer is worth the price you paid.
It's too early to be calculating taxes for 2024. I think the OP is referring to 2023. But, yes, taxes are paid in brackets, so you have several different tax rates. It sounds like 22 percent is the OP's highest bracket, or marginal tax bracket. But, the total income tax would be less than the marginal rate.

[JamesD]

"It's too early to be calculating taxes for 2024"

Wow!

Everything else spot on.

[Bill14564]

"It's too early to be calculating taxes for 2024"

Wow!

Everything else spot on.

The OP mentioned his total tax owed. Since 2024 is not complete, he could not be calculating his total tax owed for 2024. More, if he is attempting to calculate his 2024 taxes and is in the 22% bracket by early September then he will owe more than 15% by the time the year is over. Plus, he said he was using the HR Block software but the software for 2024 taxes has not been released yet.

So what was the exclamation, "Wow!" about?

[retiredguy123]

"It's too early to be calculating taxes for 2024"

Wow!

Everything else spot on.
This is mid-September 2024. The 2024 tax return is not due until April 15, 2025. The OP refers to the H&R Block tax software, which is not even available to purchase for 2024 until November, 2024. So, how is he using it now?

[roob1]

I am referring to 2023 taxes.


This is mid-September 2024. The 2024 tax return is not due until April 15, 2025. The OP refers to the H&R Block tax software, which is not even available to purchase for 2024 until November, 2024. So, how is he using it now?

[Altavia]

How old are you?

In case on Medicare, the OP needs to factor in the IRMMA payments.

SSA - POMS: HI 01101.020 - IRMAA Sliding Scale Tables - 01/04/2024 (https://secure.ssa.gov/poms.nsf/lnx/0601101020)

If younger than 73, talk to your financial guy about Roth conversions.

[JamesD]

This is mid-September 2024. The 2024 tax return is not due until April 15, 2025. The OP refers to the H&R Block tax software, which is not even available to purchase for 2024 until November, 2024. So, how is he using it now?

2024 Tax laws in place. IRS brackets established. December 31 is what counts. H&R is just a conduit. OP was just asking about marg vs effective rates sparky.

[Bill14564]

2024 Tax laws in place. IRS brackets established. December 31 is what counts. H&R is just a conduit. OP was just asking about marg vs effective rates sparky.

Might want to reread posts #1 and #8 champ.

[CoachKandSportsguy]

How old are you?

In case on Medicare, the OP needs to factor in the IRMMA payments.


Doesn't matter to the question posed, IRMMA starts at the next track above 22%
and the person indicated that he was in the 22% tax bracket. .

details matter.

[tophcfa]

How old are you?

In case on Medicare, the OP needs to factor in the IRMMA payments.

SSA - POMS: HI 01101.020 - IRMAA Sliding Scale Tables - 01/04/2024 (https://secure.ssa.gov/poms.nsf/lnx/0601101020)

If younger than 73, talk to your financial guy about Roth conversions.

And if the OP is below 65 and purchases health insurance through Obamacare, he/she needs to consider how reported gross income will affect tax credits to subsidize said insurance. Although, in the 22% marginal tax bracket, the OP probably wouldn’t be eligible and is paying the full load.

The explanation between marginal tax bracket and actual percentage owed, in the first few posts, is spot on.

[Boomer]

How old are you?

In case on Medicare, the OP needs to factor in the IRMMA payments.

SSA - POMS: HI 01101.020 - IRMAA Sliding Scale Tables - 01/04/2024 (https://secure.ssa.gov/poms.nsf/lnx/0601101020)

If younger than 73, talk to your financial guy about Roth conversions.



Doesn't matter to the question posed, IRMMA starts at the next track above 22%
and the person indicated that he was in the 22% tax bracket. .

details matter.


CoachKandSportsguy,

You are right. Details do matter. So? What do you mean?

IRMAA is based on AGI. This is a good time of year to start thinking about IRMAA and doing something, if you can, to avoid crossing that threshold into higher Medicare costs. Some people will use QCDs to do that. Others might time when it is worth taking a capital gain.

As we know, IRMAA kicks in two years later, and the 2026 IRMAA numbers are not out yet, so all we can do is guess what 2026 will bill us for our Medicare based on 2024 AGI.

Sometimes there is no way to avoid IRMAA. I think it is especially unfair to single people. Married couples get a lot more room to maneuver their AGI to avoid IRMAA.

Altavia is correct in spotting the possible need for the OP to try to factor in IRMAA. Whether that is the reason for the OP's question is not clear. But being aware of IRMAA now and planning to stay below the threshold can save a lot of money -- two years from now.

Altavia is also right in saying to look into Roth conversions if under RMD age. Check those tax brackets and do it if you can.

To those who commented that it's too early -- Nope!

Boomer (who is not an accountant)

[Stu from NYC]

This is why I am happy to pay our cpa to figure it all out and keep me out of trouble

[Bill14564]

CoachKandSportsguy,

You are right. Details do matter. So? What do you mean?

IRMAA is based on AGI. This is a good time of year to start thinking about IRMAA and doing something, if you can, to avoid crossing that threshold into higher Medicare costs. Some people will use QCDs to do that. Others might time when it is worth taking a capital gain.

As we know, IRMAA kicks in two years later, and the 2026 IRMAA numbers are not out yet, so all we can do is guess what 2026 will bill us for our Medicare based on 2024 AGI.

Sometimes there is no way to avoid IRMAA. I think it is especially unfair to single people. Married couples get a lot more room to maneuver their AGI to avoid IRMAA.

Altavia is correct in spotting the possible need for the OP to try to factor in IRMAA. Whether that is the reason for the OP's question is not clear. But being aware of IRMAA now and planning to stay below the threshold can save a lot of money -- two years from now.

Altavia is also right in saying to look into Roth conversions if under RMD age. Check those tax brackets and do it if you can.

To those who commented that it's too early -- Nope!

Boomer (who is not an accountant)

Focus on the question that was asked. The OP asked about results obtained from HR Block software regarding his marginal tax rate and overall tax burden. It is too early to consider 2024 when answering the question that was asked. 2024 overall tax burden cannot yet be determined and the HR Block software for 2024 is not available yet. It is too early for the answer to that question to have anything to do with 2024 tax brackets.

The discussion about IRMAA, RMD, Roth, 2024 tax brackets, and 2026 payments is interesting but not applicable to the question being answered.

[CoachKandSportsguy]

Focus on the question that was asked. The OP asked about results obtained from HR Block software regarding his marginal tax rate and overall tax burden. It is too early to consider 2024 when answering the question that was asked. 2024 overall tax burden cannot yet be determined and the HR Block software for 2024 is not available yet. It is too early for the answer to that question to have anything to do with 2024 tax brackets.

The discussion about IRMAA, RMD, Roth, 2024 tax brackets, and 2026 payments is interesting but not applicable to the question being answered.

Maybe, if the person was using the software to figure out if he needed to send in additional taxes because his withholding was too low, then it's appropriate using even 2023 tax tables. If there is a large gap, there are small penalties. Otherwise I agree.

[Altavia]

CoachKandSportsguy,

You are right. Details do matter. So? What do you mean?

IRMAA is based on AGI. This is a good time of year to start thinking about IRMAA and doing something, if you can, to avoid crossing that threshold into higher Medicare costs. Some people will use QCDs to do that. Others might time when it is worth taking a capital gain.

As we know, IRMAA kicks in two years later, and the 2026 IRMAA numbers are not out yet, so all we can do is guess what 2026 will bill us for our Medicare based on 2024 AGI.

Sometimes there is no way to avoid IRMAA. I think it is especially unfair to single people. Married couples get a lot more room to maneuver their AGI to avoid IRMAA.

Altavia is correct in spotting the possible need for the OP to try to factor in IRMAA. Whether that is the reason for the OP's question is not clear. But being aware of IRMAA now and planning to stay below the threshold can save a lot of money -- two years from now.

Altavia is also right in saying to look into Roth conversions if under RMD age. Check those tax brackets and do it if you can.

To those who commented that it's too early -- Nope!

Boomer (who is not an accountant)

From my perspective, if someone is not aware of how the progressive income tax structure works, seems likely are other factors impacting their taxes that have been overlooked.

Getting professional help is probably the best advise given here.

[Ellwoodrick]

Not on topic but if you had a windfall year and then dropped back down the following year can you appeal the IRMMA rate?

[MikeN]

Ask a tax professional, not an online forum

[Pat2015]

Most people know what their monthly income is so it’s easy to estimate taxes. What you don’t want to do is take an IRA/401k withdrawal (unless forced to with RMD’s) in the last quarter and find that’s pushed you into a higher tax bracket.

[Pat2015]

Not on topic but if you had a windfall year and then dropped back down the following year can you appeal the IRMMA rate?
I know several people who have succcessfully done that.

[CoachKandSportsguy]

Ask a tax professional, not an online forum

for such a simple question, really?
its just mafs and all in the public domain.

asking a question is not like filing a return. .

[Pat2015]

"It's too early to be calculating taxes for 2024"

Wow!

Everything else spot on.
Never too early in the year to calculate/estimate taxes as some pay taxes quarterly to avoid tax penalties, and it’s good to plan withdrawals from taxable accts to watch out/prepare for additional charges for Medicare, and potentially an uptick in SS taxes.

[Carlsondm]

The OP mentioned his total tax owed. Since 2024 is not complete, he could not be calculating his total tax owed for 2024. More, if he is attempting to calculate his 2024 taxes and is in the 22% bracket by early September then he will owe more than 15% by the time the year is over. Plus, he said he was using the HR Block software but the software for 2024 taxes has not been released yet.

So what was the exclamation, "Wow!" about?
Some of us call it “tax planning”. Usually we start in 0ctober.

[retiredguy123]

Note that if you pay your taxes quarterly, there is a specific quarterly amount that you can pay, based on your prior year taxes, that will guarantee that you will not owe a penalty the following year. For most people, this is the "total tax" amount on the Form 1040 divided by 4. For high income people, this amount can be slightly higher. If you use this method, no tax planning to make up a shortfall is required.

[bragones]

Ask a tax professional, not an online forum

Why? There's been some good info to digest in this thread.

[nn0wheremann]

My taxable income fell in 22% bracket. Yet HR Block tax software indicated my total tax owed at about 15% of my taxable income. I took the standard deduction only. What am I missing?
Only a portion of your taxable income was in each bracket, 11%, and 22%. So, the average of the portion in each bracket was the stated percentage.

[Stu from NYC]

Why? There's been some good info to digest in this thread.

Very true but is all of this good info, accurate?

[Haggar]

"It's too early to be calculating taxes for 2024"

Wow!

Everything else spot on.

As an active CPA I tax plan for the next year for my clients when we finish the return for the prior year. Basing estimated payments om prior year income to eliminate penalties and interest is fine for some but for some of my clients they want more info on their next year. Taxable events may change, higher or lower interest income because of changing interest rates, starting to receive social security, RMD's, sale of assets, sale of a business, etc all affect the next year projection. It's important to pay enough estimated taxes but it's also important not to overpay or know what the balance next April 15 will be in addition to the estimates required.

My compliments to many of the posters for answering the OP accurately.

[DONNIEBRONX]

The tax is graduated- see the chart for the brackets below 22%. You tax rate of 15% is a combination of you tax on the amounts in the brackets below 22% + whatever remains in the 22% bracket

[dewilson58]

I think the OP's question was answered +20 posts ago.

chilout

[JRcorvette]

You don't pay 22% on your entire income, so 15% sounds correct.

Example using 2024 brackets.
10% on $11,600
12% on the portion $11,601 to $47,150
22% on the amount over $47,150 (up to $100,525)

https://equitable.com/tax-strategies/tax-calculators/estimate-your-effective-tax-rate

That’s a great calculator. Thanks

[Stu from NYC]

I think the OP's question was answered +20 posts ago.

chilout

When does that ever stop us

[Topspinmo]

This is why I am happy to pay our cpa to figure it all out and keep me out of trouble

Small fry, ask willie Nelson how that turned out. Flat tax is best solution, I don’t care how many kids or foundation person has it shouldn’t be scheme, it should be you made this much and you pay this much, no need for CPAs, HR block types or tax lawyers.

[CoachKandSportsguy]

I think the OP's question was answered +20 posts ago.

chilout

Although true, we have to evaluate everyone's answer to thoroughly hammer out the final answer, be3ing sure that any adjacent topic be brought in, bunked or debunked, and then confirm that the original answers were fine.

also, with enough discussion, a professional will surely show up and answer the question to, to whom we self proclaimed experienced posters will finally bow down to as final

[Haggar]

Small fry, ask willie Nelson how that turned out. Flat tax is best solution, I don’t care how many kids or foundation person has it shouldn’t be scheme, it should be you made this much and you pay this much, no need for CPAs, HR block types or tax lawyers.

Flat rate is just one rate, instead of multiple rates. What is taxable income? The thirty thousand pages of code only has a few pages for rates.

Still a need for CPAs.

[Stu from NYC]

Small fry, ask willie Nelson how that turned out. Flat tax is best solution, I don’t care how many kids or foundation person has it shouldn’t be scheme, it should be you made this much and you pay this much, no need for CPAs, HR block types or tax lawyers.

Tax code is way too complicated and we need smart people who instead of helping to build our economy figure out how one should pay their taxes.

[manaboutown]

I think the OP's question was answered +20 posts ago.

chilout

Well, this is a great place to beat a dead horse, yes?

[Boomer]

(sigh)

I see the usual snarkmeisters are present and accounted for, taking swipes at some good conversation. So what? This is a good discussion. Good discussions take side roads sometimes and that's OK.

We have seen the random pop-ins who always show up to state the obvious about not taking advice on the internet or consulting a professional......

Oh fergawd's sake, this bunch of old TOTVers all know that. If that's all ya got, at least look at previous posts in the thread and make sure you are not the upteenth poster to say the same old one-liner.

But I am shocked. I tell you shocked, oh so very shocked to see a couple of oldtimers who usually contribute to this kind of discussion have suddenly decided to act like aging patrol boys. Geez.

JFTR, I am sitting at my desk today projecting taxes. Am I grouchy right now? Well, yeah.

Boomer

[Boomer]

As an active CPA I tax plan for the next year for my clients when we finish the return for the prior year. Basing estimated payments om prior year income to eliminate penalties and interest is fine for some but for some of my clients they want more info on their next year. Taxable events may change, higher or lower interest income because of changing interest rates, starting to receive social security, RMD's, sale of assets, sale of a business, etc all affect the next year projection. It's important to pay enough estimated taxes but it's also important not to overpay or know what the balance next April 15 will be in addition to the estimates required.

My compliments to many of the posters for answering the OP accurately.


Haggar, I love it when your CPA-self stops by to rescue us from ourselves. I was hoping you would show up. Thank you.

An extra thank you for taking up for us tax-planning types.

As you well know, there are buy-and-hold, long-term investors who could be thinking about selling or gifting a few shares because their favorite individually held stock(s) just hit an all-time high. If they are paying attention, this should be on their minds.

The October Kiplinger has an article touted on the cover as "How Much of Your Savings Can You Afford to Give?" The article says to be sure to take care of yourself first, but then goes into several ways to handle gifting. (I know you already know this stuff, of course, but I am throwing it in here in case anyone reading this post might want to find the article.)

The other issue is considering selling and keeping it all for yourself -- except for that pesky cap gain tax. Gauging potential tax-bracket changes and/or a hit from IRMAA means tax-planning so no surprises.

Not terrible problems to have but certainly a reason to plan -- and to talk to an accountant.

Boomer

[manaboutown]

Following the detour to tax planning taken by a handful of posters I have been reviewing my portfolios to see if some securities might be sold because I view it as advantageous to take LTCGs in 2024 rather than in 2025. Why? Because tax rates will be going up, maybe up, up, up. The writing is on the wall and I find it from at minimum confiscatorily scary to potentially terrifying.

Having for business associates aging out reasons fortuitously taken huge (for me) LTCGs in 2022 and 2023 I had hoped to coast this year, but...

On a new detour I added $18K to each grandchild's 529 plan, maxing out my gift tax exclusions to them this year. I plan on doing it again early in 2025 as I believe the estate tax exclusion is in danger of being dramatically reduced. How to Prepare for Upcoming Estate Tax Law Changes | Kiplinger (https://www.kiplinger.com/retirement/estate-tax-law-changes-how-to-prepare)

I am also considering setting up Crummey trusts for my children and other beneficiaries. Crummey Trust: Definition, Purpose, How It Works, and History (https://www.investopedia.com/terms/c/crummey-trust.asp#:~:text=our%20editorial%20policies-,What%20Is%20a%20Crummey%20Trust%3F,recipient%20ca n%20access%20the%20money).

[Laker14]

I think the OP's question was answered +20 posts ago.

chilout

Yes, but it's so much fun to read spin-off arguments that have nothing to do with the OP.
Hang on, my popcorn is burning.

[manaboutown]

///

[Bill14564]

Looks like I am not alone in being concerned about estate taxes..

Access Denied (https://www.cnbc.com/2024/09/13/harris-rise-in-polls-sparks-wave-of-wealth-transfers-to-kids-.html)

I am quite a few million away from having to be concerned.

[retiredguy123]

I am quite a few million away from having to be concerned.
It can change at any time. I remember a few years ago when the lifetime exclusion was only $1 million.

[Bill14564]

It can change at any time. I remember a few years ago when the lifetime exclusion was only $1 million.

In that case, if the exclusion is unknowable, then there is no reason to be concerned at all.

[manaboutown]

It can change at any time. I remember a few years ago when the lifetime exclusion was only $1 million.

"History of Federal Estate Tax Laws
The landmark Taxpayer Relief Act of 1997 called for a gradual increase in the estate exemption from $600,000 in 1997 to $1 million by 2006.5 This set the stage for greater increases in years to come.

Estate taxes from 2010 through 2012 were based on the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act that was signed into law by President Obama on Dec. 17, 2010, but the law was only good for two years. It was supposed to expire on Dec. 31, 2012, so the federal estate tax exemption and rate would have defaulted to the previous number that was in effect.6

This didn't happen. Congress passed the American Taxpayer Relief Act (ATRA) on Jan. 1, 2013, and President Obama signed it into law on Jan. 2, 2013. ATRA was intended to make permanent changes to the laws governing federal estate taxes, gift taxes, and generation-skipping transfer taxes.7

Fast-forward to President Trump, who signed the Tax Cuts and Jobs Act (TCJA) in December 2017. The exemption had been only $5.49 million in 2017. The TCJA more than doubled that to $11.18 in 2018.8

Tax Exemptions and Rates Over the Years
Here's how the estate tax has been assessed down over the years:9

YEAR ESTATE TAX EXEMPTION TOP ESTATE TAX RATE
1997 $600,000 55%
1998 $625,000 55%
1999 $650,000 55%
2000 $675,000 55%
2001 $675,000 55%
2002 $1,000,000 50%
2003 $1,000,000 49%
2004 $1,500,000 48%
2005 $1,500,000 47%
2006 $2,000,000 46%
2007 $2,000,000 45%
2008 $2,000,000 45%
2009 $3,500,000 45%
2010 $5,000,000 or $0 35% or 0%
2011 $5,000,000 35%
2012 $5,120,000 35%
2013 $5,250,000 40%
2014 $5,340,000 40%
2015 $5,430,000 40%
2016 $5,450,000 40%
2017 $5,490,000 40%
2018 $11,180,000 40%
2019 $11,400,000 40%
2020 $11,580,000 40%
2021 $11,700,000 40%
2022 $12,060,000 40%
The heirs of decedents who died in 2010 had a choice. They could use the $5 million estate exemption at the 35% estate tax rate, or they could elect to use the $0 estate tax exemption at a 0% tax rate, coupling the use of modified carryover basis rules.10

The Exemption Can Decrease After 2025
The TCJA is not permanent. It is slated to expire after 2025, and the exemption amount can revert to its pre-2018 level at that time unless Congress acts to renew the legislation or even some of its provisions."

From: How the Federal Estate Tax Exemption Changed from 1997 to Today (https://www.thebalancemoney.com/exemption-from-federal-estate-taxes-3505630)

[manaboutown]

/// double post

[retiredguy123]

In that case, if the exclusion is unknowable, then there is no reason to be concerned at all.
Note that lifetime gifting, while you are alive, of $18,000 each per year to as many people as you want will reduce your lifetime exclusion. So, even a billionaire can totally eliminate their Federal estate tax by gifting.