Overview

Main Menu Name: Indiv. Tax

Calculates the income tax payable by single, married filing joint, and married filing separate taxpayers, as well as those filing as head of household. The taxpayer's marginal and effective tax rates are also computed. For future year, the program uses the entered inflation rate to estimate the income tax. Each year, the program is updated with more current tax brackets.

In this article:

• Background
• Getting Started
• Entering Data
• Results

Background

This calculation is a simplified estimation of the income tax payable in any year (1991-2024), or a simplified estimation of the tax payable in future years, for taxpayers filing joint, single, separate, and head of household tax returns.

Additionally, the calculation determines your effective total tax rate and effective marginal tax rate.

Getting Started

The program takes into account the various bracket changes, rate changes, and phase-out changes made by the Jobs and Growth Tax Relief Reconciliation Act of 2003, the Economic Growth and Tax Relief Reconciliation Act of 2001, the Tax Relief, Unemployment Insurance Reauthorization, and Jobs Creation Act of 2010, the American Taxpayer Relief Act of 2012, and the Tax Cuts & Jobs Act of 2017 ("TCJA of 2017")..

For years after 2012, the program also calculates the additional 3.8% tax on net investment income that was enacted as part of the Patient Protection and Affordable Care Act of 2010.

The IRS makes annual adjustments for inflation in the tax rate schedules, personal and dependency exemptions, and standard deductions.

This calculation uses the IRS formulas to make these same adjustments.

To calculate estimated tax for future tax years, simply enter the assumed average annual inflation rate until the year of estimate.

Entering Data

1. Tax Year:  Enter the year for which the federal income tax is being calculated. The program handles years from 1991 onwards, with estimated tax brackets and other inflation adjustments after the current year.
   
   
2. Adjusted Gross Income:  Enter the total estimated amount of adjusted gross income for the year in which taxes are being calculated.
   
   
3. Total Itemized Deductions:  Enter the estimated total of allowable itemized deductions.
   
   
4. Deductions Not Subject to Phaseout:  Enter the estimated total of allowable medical, casualty, or theft losses, and investment-interest deductions (subject to the regular limits and restrictions discussed above).
   
   
5. Total Long-term Capital Gain:  Enter the total net gain from the sale or disposition of capital assets held for more than one year that has been included in adjusted gross income.
   
   
6. 28% Rate Capital Gain:  Enter the total net gain from collectibles and section 1202 that has been included in adjusted gross income. (See IRC section 1(h)(4).)
   
   
7. Qualified Dividends:  For years 2003 and following, enter the total amount of dividends that are included in adjusted gross income and qualify for the special tax rate for long-term capital gains.
   
   
8. Unrecaptured §1250 Gain:  Enter the amount of long-term capital gain included in adjusted gross income that would be ordinary income if section 1250 applied to depreciation in excess of 100% straight-line depreciation. (See IRC section 1(h)(6)).
   
   
9. Net Investment Inc.:  For tax years after 2012, enter the amount of net investment income as defined by IRC section 1411(c) that has been included in adjusted gross income. In general, net investment income is investment income such as interest, dividends, capital gains, rental and royalty income, non-qualified annuities, income from businesses trading financial instruments or commodities, and businesses that are passive activities to the taxpayer (within the meaning of section 469), reduced by deductions properly allocable to those incomes, such as investment interest expense, investment advisory and brokerage fees, expenses related to rental and royalty income, tax preparation fees, fiduciary expenses (in the case of an estate or trust), and state and local income taxes.
   
   
10. Filing Status:  Choose the applicable filing status (Single, Joint, Separate, Head of Household).
    
    
11. Age in Tax Year:  Enter the taxpayer's age at the end of the tax year being calculated.
    
    
12. Spouse's Age in Tax Year:  Enter the age of the taxpayer's spouse at the end of the tax year being calculated.
    
    
13. Personal Exemptions:  Enter the number of allowable personal exemptions for the taxpayer and any dependents.
    
    
14. Estimated Inflation:  Enter an inflation rate to be applied to bracket amounts and other deductions in future years. For the current year or past years, this input is not applicable.
    
    
15. Sunset in 2026?:  If the year is 2026 or later, you can select how future income tax calculations will be handled.

Results

The Summary Tab displays the federal income tax due based on the adjusted gross income, itemized deductions, filing status, and number of personal and dependency exemptions.

Note:  The TCJA of 2017 suspended personal exemptions for 2018-2025.  In 2026 they are scheduled to return, together with the tax brackets, tax rates, and lower standard deductions of 2017, as increased by inflation.

Results are calculated for joint, single, and separate taxpayers as well as those filing as head of household.

To calculate the tax payable, the calculation automatically calculates your standard deduction, applies any applicable phase-out reductions, and calculates your adjusted itemized deductions. The standard and adjusted itemized deductions are displayed on the results screen. The calculation then uses either the standard deduction or adjusted itemized deduction (whichever is greater) to calculate the taxable income. It then subtracts any personal and dependency exemptions by the phase-out amount to arrive at the adjusted personal exemptions.

When there are values entered for capital gains or qualified dividends, the income tax under Schedule D is calculated. If net investment income is entered and the net investment income exceeds certain threshold amounts, the additional 3.8% tax under IRC 1411 is calculated and shown.

Also calculated are the effective average tax rate (adjusted net income divided by the total tax due) and the effective marginal tax rate (which takes into account possible phase-outs for personal exemptions and itemized deductions). If net investment income is entered, the effective marginal tax rate on investment income is shown.