Calculating Overall Tax Rate

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Dukenyc1
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Joined: Fri Jul 10, 2020 9:12 am

Calculating Overall Tax Rate

Post by Dukenyc1 »

Calculating Overall Tax Rate - Specifically in NYC

Hope someone can help me out.

I need to calculate my overall tax rate for a legal issue I am having.

I live in NYC make exactly 199k in income (married filing jointly).

I want to know if I am doing this correctly or am I missing something (FICA?)

Joint Taxable Income 199000
Total Federal Tax 35200
Total NYS and NYC 21000

According to my calculation this is about 28.25 percent.

This seems low - am I wrong about this?
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FiveK
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Re: Calculating Overall Tax Rate

Post by FiveK »

Depends on the definition of "overall." E.g., is the denominator
- AGI, or
- taxable income?

Does "overall" include FICA?
Topic Author
Dukenyc1
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Re: Calculating Overall Tax Rate

Post by Dukenyc1 »

The denominator is taxable income.

Not sure how FICA fits into the calculation.

I basically looked at the taxable income line of my 1040 as well as NYC/NYC State taxes.

Thanks for your help.
hachiko
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Re: Calculating Overall Tax Rate

Post by hachiko »

It may help if you provide some direction of why you need to know the percentage. Not only do we need to know the correct denominator, but we also need to know what goes into the numerator. Is it income taxes or is it all taxes?

What's the goal? Are you trying to make the percentage as large as possible? If so, you also pay sales taxes, gas taxes, maybe health care type taxes, etc. If you're trying to make it as small as possible, do you have to use taxable income as the denominator? Or can you use the equivalent of "book income." Increase your taxable income by all other non-taxable income: 401k contributions, employer paid health insurance, etc.
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teen persuasion
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Re: Calculating Overall Tax Rate

Post by teen persuasion »

Dukenyc1 wrote: Wed Nov 18, 2020 7:25 pm Calculating Overall Tax Rate - Specifically in NYC

Hope someone can help me out.

I need to calculate my overall tax rate for a legal issue I am having.

I live in NYC make exactly 199k in income (married filing jointly).

I want to know if I am doing this correctly or am I missing something (FICA?)

Joint Taxable Income 199000
Total Federal Tax 35200
Total NYS and NYC 21000

According to my calculation this is about 28.25 percent.

This seems low - am I wrong about this?
Are you sure taxable income is the correct base? What about AGI, or gross income, or earned income? Taxable income would be AGI minus standard(or itemized) deduction.

Just as an example of how much these can vary, here's rough approximations of our numbers (also NYS, not NYC):
Gross earned income $75k
AGI $36k
Taxable income $11k
ilan1h
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Re: Calculating Overall Tax Rate

Post by ilan1h »

I think when people speak about their tax brackets, they are generally using total tax paid as numerator and total income as denominator?
MathIsMyWayr
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Re: Calculating Overall Tax Rate

Post by MathIsMyWayr »

ilan1h wrote: Sun Nov 22, 2020 12:08 am I think when people speak about their tax brackets, they are generally using total tax paid as numerator and total income as denominator?
No, a tax bracket is in the tax table according to the taxable income defined by
AGI(8b)-Deductions(11a)=Taxable income(11b)
Example: If the taxable income is between $172,750 and $329,849, you are in the 24% tax bracket for a MFJ. Can it be between $172,751 and$329,850?
prd1982
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Re: Calculating Overall Tax Rate

Post by prd1982 »

MathIsMyWayr wrote: Sun Nov 22, 2020 1:15 am [
No, a tax bracket is in the tax table according to the taxable income defined by
AGI(8b)-Deductions(11a)=Taxable income(11b)
Not true if you have taxable dividends or long term capital gains. People really need to look at either their schedule D or tax calculation worksheet to determine their bracket. As many have mentioned on this forum, people should use a desktop version of a tax program, and understand how the tax is calculated.
livesoft
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Re: Calculating Overall Tax Rate

Post by livesoft »

Not mentioned are the income exclusions provided by 401(k)/403(b) contributions, HSA contributions, 529 contributions (for state tax purposes), and all the numerous tax credits available.
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retiredjg
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Re: Calculating Overall Tax Rate

Post by retiredjg »

ilan1h wrote: Sun Nov 22, 2020 12:08 am I think when people speak about their tax brackets, they are generally using total tax paid as numerator and total income as denominator?
This may the the way that some people calculate their "effective tax rate", but it is not related to tax brackets.
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happysteward
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Re: Calculating Overall Tax Rate

Post by happysteward »

Here are my thoughts including assumptions, I think you are low if you want to include FICA as I have....

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MathIsMyWayr
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Re: Calculating Overall Tax Rate

Post by MathIsMyWayr »

prd1982 wrote: Sun Nov 22, 2020 8:21 am
MathIsMyWayr wrote: Sun Nov 22, 2020 1:15 am [
No, a tax bracket is in the tax table according to the taxable income defined by
AGI(8b)-Deductions(11a)=Taxable income(11b)
Not true if you have taxable dividends or long term capital gains. People really need to look at either their schedule D or tax calculation worksheet to determine their bracket. As many have mentioned on this forum, people should use a desktop version of a tax program, and understand how the tax is calculated.
It may be meaningless, but tax rate and tax bracket are not the same. Tax rate is defined according to the tax table and tax rate is loosely defined. If somebody mentions that he is in the 37% tax bracket, it usually means a well paying job, not a well paying job without a $50 MM of VTSAX in a taxable investment.
ilan1h
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Re: Calculating Overall Tax Rate

Post by ilan1h »

prd1982 wrote: Sun Nov 22, 2020 8:21 am
MathIsMyWayr wrote: Sun Nov 22, 2020 1:15 am [
No, a tax bracket is in the tax table according to the taxable income defined by
AGI(8b)-Deductions(11a)=Taxable income(11b)
Not true if you have taxable dividends or long term capital gains. People really need to look at either their schedule D or tax calculation worksheet to determine their bracket. As many have mentioned on this forum, people should use a desktop version of a tax program, and understand how the tax is calculated.
Isn't the effect of schedule D already part of Taxable income (11b). Looking at my copy of a 1040 I see that lines 2,3,4,6 are all related to investment income. All of these flow down to 11b. So the amount of 11b is the total taxable income. If you put that into the denominator and the actual tax that you paid into the numerator, that should be your effective tax rate. This is the number that will influence various decisions that you make eg: what do I save by investing in munis instead of taxable bonds.
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FiveK
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Re: Calculating Overall Tax Rate

Post by FiveK »

ilan1h wrote: Sun Nov 22, 2020 1:13 pm Isn't the effect of schedule D already part of Taxable income (11b). Looking at my copy of a 1040 I see that lines 2,3,4,6 are all related to investment income. All of these flow down to 11b. So the amount of 11b is the total taxable income. If you put that into the denominator and the actual tax that you paid into the numerator, that should be your effective tax rate.
Yes, the effective tax rate based on taxable income. Others might argue that line 8b, adjusted gross income, should be the denominator. Still others might argue that gross income (which might not be found anywhere on Form 1040, e.g., if 401k contributions have been subtracted) should be the denominator, etc.
This is the number that will influence various decisions that you make eg: what do I save by investing in munis instead of taxable bonds.
For decisions like that, you'll want to use marginal tax rates instead of effective. See Marginal Vs Effective Tax Rates And When To Use Each.
trueblueky
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Re: Calculating Overall Tax Rate

Post by trueblueky »

You may have more than one marginal tax rate if you are using that figure for planning.
A rate for the next dollar of salary
A rate for the next dollar of qualified dividends/LTCG
A rate for 1099 income that qualifies for QBI
A rate for 1099 income that does not qualify for QBI and is subject to SS/Medicare at the self-employed rates
A rate for tax-free municipal bond interest if you have Social Security

The answer to "how much federal income tax will I owe on the next dollar of income?" requires first asking "what type of income?"

There are also IRMAA, ACA and other cliffs built into the system. The surest way to calculate marginal rate is to add $100 to a type of income. See what happens. Take that out, then add it to another type.
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