Tax Bracket Question
 

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?

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...ctive-tax-rate

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.

"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?

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?

I am referring to 2023 taxes.

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

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

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.

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.

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.

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)

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

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.

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.

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

Ask a tax professional, not an online forum

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.

I know several people who have succcessfully done that.

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

asking a question is not like filing a return. .

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.

Some of us call it “tax planning”. Usually we start in 0ctober.

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.

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

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.

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

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.

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

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

chilout

That’s a great calculator. Thanks

When does that ever stop us

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.

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

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.

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.

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

(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