Please check my tax bracket math

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Topic Author
HEDGEFUNDIE
Posts: 3093
Joined: Sun Oct 22, 2017 2:06 pm

Please check my tax bracket math

Post by HEDGEFUNDIE » Wed Aug 14, 2019 12:15 am

Just making sure I’m not missing anything, am I actually in the 32% MFJ tax bracket?

Income
Gross base salary: 355k
ESPP profit, sold immediately upon purchase date: 10k
RSUs, sold immediately upon vesting: 55k
Taxable dividends and bank interest: 10k
Total: 430k

Pre-tax deductions
Pre-tax 401k contributions: 38k
Dependent care FSA: 5k
Medical insurance premiums (employee portion): 2k
HSA: 5k
Limited Purpose FSA: 1k
Transit: 3k
Total: 54k

Itemized deductions
SALT: 10k
Mortgage interest: 23k
Charity: 10k
Total: 43k

Tax credits
Child tax credit: 2k

Total taxable income is 430 - 54 - 43 = 333
32% MFJ threshold is 321k, so I will owe 32% on 12k. The child tax credit get applied after the full income tax is calculated.

Does all of this look right?

Startled Cat
Posts: 457
Joined: Thu Apr 03, 2008 8:54 pm

Re: Please check my tax bracket math

Post by Startled Cat » Wed Aug 14, 2019 12:55 am

I assume that the $23k of mortgage interest comes from having a significantly higher rate in the first part of the year before refinancing down to 2.65, and going forward you won't get as large a deduction?

"Taxable dividends" may be mostly qualified depending on the particulars, and taxed at 15% rather than the marginal tax rate.

But these are small quibbles and it seems like you should plan around a 32% federal tax bracket absent any unexpected drop in income or extra charitable generosity.

You will also be subject to the 0.9% Medicare surtax on earned income and 3.8% NIIT on non-earned income.

Topic Author
HEDGEFUNDIE
Posts: 3093
Joined: Sun Oct 22, 2017 2:06 pm

Re: Please check my tax bracket math

Post by HEDGEFUNDIE » Wed Aug 14, 2019 1:01 am

Startled Cat wrote:
Wed Aug 14, 2019 12:55 am
I assume that the $23k of mortgage interest comes from having a significantly higher rate in the first part of the year before refinancing down to 2.65, and going forward you won't get as large a deduction?
2.65% x 750k principal limit = $20k deduction in future years.
"Taxable dividends" may be mostly qualified depending on the particulars, and taxed at 15% rather than the marginal tax rate.
So if they are qualified dividends, does that mean they are excluded from the taxable income calculation?

Startled Cat
Posts: 457
Joined: Thu Apr 03, 2008 8:54 pm

Re: Please check my tax bracket math

Post by Startled Cat » Wed Aug 14, 2019 1:07 am

HEDGEFUNDIE wrote:
Wed Aug 14, 2019 1:01 am
So if they are qualified dividends, does that mean they are excluded from the taxable income calculation?
The qualified dividends don't count as income in a particular ordinary tax bracket. You calculate the tax on ordinary income first and then add on the tax on capital gains/qualified dividends which is calculated separately. The add-on calculation has its own set of tax brackets that depends on your total taxable income, but it ends up being 15% for most people (0% below a certain income threshold, 20% above ~470k MFJ).

cas
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Joined: Wed Apr 26, 2017 8:41 am

Re: Please check my tax bracket math

Post by cas » Wed Aug 14, 2019 5:01 am

At your AGI, Net Investment Income Tax (additional 3.8% on investment income) is going to enter the picture as well. NIIT definitely applies to the interest/dividends. ESPP and RSUs are NOT my area of knowledge, but to the extent that the income from those is categorized as capital gains, I'd assume that NIIT would apply there as well. (On the other hand, if any of the ESPP and RSU income is categorized as long term capital gains, I assume it would get the same preferred tax treatment as the qualified dividends, as Startled Cat explained above.)

kaneohe
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Joined: Mon Sep 22, 2008 12:38 pm

Re: Please check my tax bracket math

Post by kaneohe » Wed Aug 14, 2019 7:23 am

It might be useful if you do a few examples in the QDIV/CG wksht
https://taxmap.irs.gov/taxmap/instr/i10 ... #w24811v12

You will see that QDIV/CG get subtracted from your taxable income. Then the
taxes get calculated separated on the QDIV/CG and then rest of the taxable income
(ordinary income).

In your example, taxable income is 333K. You don't specify how much is QDIV, just that
DIV + interest =10K. Assuming QDIV= 10K, taxable income less QDIV = 323K. If MFJ 32%
threshold is 321K , then 2K of your ordinary income is taxed at 32%. Your QDIV is taxed at
15% and, as others have said, you have the 3.8% NIIT in addition for total of18.8%. I believe
your stock plans,when exercised immediately, will be ordinary income.

edit to add: your tax bracket can be defined to mean different things:
1) your taxable income is in the 32% bracket.......this defines in part what your QDIV/CG are taxed at: 15% (not including NIIT)
2)Note that this does not necessarily determine what your ordinary income is taxed at. Subtract your QDIV/CG from your taxable
income and you can see what tax bracket your ordinary income falls in.
3)Your marginal tax bracket can be different depending on the interaction of different things.
Last edited by kaneohe on Wed Aug 14, 2019 9:13 am, edited 1 time in total.

Topic Author
HEDGEFUNDIE
Posts: 3093
Joined: Sun Oct 22, 2017 2:06 pm

Re: Please check my tax bracket math

Post by HEDGEFUNDIE » Wed Aug 14, 2019 8:31 am

Thanks everyone.

rkhusky
Posts: 6871
Joined: Thu Aug 18, 2011 8:09 pm

Re: Please check my tax bracket math

Post by rkhusky » Wed Aug 14, 2019 8:38 am

And note that your marginal rate can be different than your tax bracket. For example, with Social Security and when cap gains straddle a boundary.

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