Effective Tax Rate on 2023 Taxes, not added up

Forum|Forum|1 year ago
October 19, 2024
3 replies
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Hi - I need some help. I am reviewing my 2023 Jt Return for NJ. We have a Taxable Income of $76,713, which should put our Effective Tax Rate somewhere between 10 & 12%, using the progessive taxing method (Our taxable income falls within the 12% bracket). However, the Effective Tax Rate on our return shows only 6.15%. Our Total Tax was $6520.00. If you divide that by the taxable income, you get 8.5%...still doesn't make sense because it's below 10%. I am confused!

All figures are here:

Taxable Income - 76,713

Total Tax - 6520

Total Payments/Credits - 2169

Payment Due - 4351

Penalty/Int - 93

Bal Due w/ Penalty/Int - 4,444.00

Effective Tax Rate - 6.15%

Again, if our Taxable Income is 76,713 and we fall in the 10-12% bracket, how is TT calculating 6.15%??

Thank you in advance for helping me understand how the numbers are calculated.

Ultimately, I am trying to calculate our Estimated 2024 income.

Best answer by taxlady28

The effective tax rate that TurboTax computes has no relation to the rate of tax that you actually paid. It is a very confusing figure that causes a lot of questions and I wish it would just go away.

rjs

Employee

All the information that you provided is from your federal tax return, not your New Jersey tax return. TurboTax does not calculate an effective tax rate for New Jersey.

The figure that TurboTax calls "effective tax rate" is based on Adjusted Gross Income (AGI), not taxable income. It makes adjustments in its calculation for a number of uncommon situations. Try dividing the tax on Form 1040 line 16 by your AGI on line 11 and see if you get 6.15% or something close to it.

UPDATE: Instead of using the tax on Form 1040 line 16, try using the total tax on Form 1040 line 24. That should get you closer to the effective tax rate that TurboTax calculated.

I'm not sure what you mean by "the progessive taxing method," but the tax brackets apply to taxable income, not AGI. So you cannot compare the effective tax rate, which is based on AGI, to the tax brackets that apply to taxable income. The effective tax rate has nothing to do with the rates that are used to calculate your tax. The effective tax rate is just meant to give you a bird's eye view of what percentage of your total income you are paying in federal income tax. That also means that you cannot use the effective tax rate to estimate your 2024 tax.

You said "I am trying to calculate our Estimated 2024 income." TurboTax can't estimate your income, and the effective tax rate doesn't tell you anything about your expected income. You have to figure out how much income you expect to have from your various sources of income. If you mean that you want to estimate your 2024 tax, there are various ways to do that once you have an estimate of your 2024 income. One tool you can use is TaxCaster. It's still set up for 2023, but there are not likely to be any major changes for 2024, so it will give you a good rough estimate of your federal tax. You didn't say whether you are using TurboTax Online or the CD/Download TurboTax software for 2023. If you are using the CD/Download software you can use the What-If Worksheet in forms mode to estimate your 2024 tax. It has a box at the top of each column that you can check to use 2024 tax rates.

rjs

Employee

After further investigation, it appears that TurboTax calculates the effective tax rate using the total tax on Form 1040 line 24, not the tax on line 16. Divide the total tax on Form 1040 line 24 by the Adjusted Gross Income (AGI) on Form 1040 line 11 and see if you get 6.15%.

I have added an update to my earlier answer above to make this change.

TerryDAuthor

Hi RJS - Thank you for the two replies. I just did the division you suggested and it comes to the 6.15%, as you thought. However, that still doesn't answer my primary question - How can I confirm my Federal Tax Rate (12%), using TurboTax? That's what I am trying to do here, confirm the math on my Federal return, to match-up to the 2023 Federal Tax Rate Chart. I'll reply to your response above too, but thanks for confirming the math above.

Also, RJS - Can you provide your credentials? Are you a Tax Advisor/Tax preparer? Do you work for Intuit or are you a TT community supporter? I'm a retired engineer/Tech Exec, been doing my own taxes on TT for many many years, but at a point now where we may do some Roth IRA Conversion, hence I want to know (and confirm) our current Federal Tax rate on TT first (which is my struggle here). After that, I'll want to do an estimate of our 2024 Taxes (not using TT, I know), but on a spreadsheet I made, using new income figures I have prepared. After that, I'll know, what I have to play with, and decide whether to keep us in the low 12% bracket (below the $94,300 max), or whether we want to convert more, and bump us up into the 22% bracket (we're close to it this year, I think), all without risking bumping up into the next tax bracket (24%). That's the exercise I am trying to do here.

VolvoGirl

Employee

It depends on what kind of income you have. There are like 7 different ways to figure the tax.

See the IRS worksheet on 1040 page 36 for how the tax is figured. Turbo Tax uses the same worksheet.

https://www.irs.gov/pub/irs-pdf/i1040gi.pdf

Even though it shows up as income on the first page,if you have capital gains or qualified dividends the tax is not taken from the tax table but is calculated separately from schedule D. The tax will be calculated on the Qualified Dividends and Capital Gain Tax Worksheet. It does not get filed with your return.

In the online version you need to save your return as a pdf file and include all worksheets to see it.

For the Desktop version you can switch to Forms Mode and open the worksheet to see it. Click Forms in the upper right (upper left for Mac) and look through the list and open the Qualified Dividends and Capital Gain Tax Worksheet. And you will need to use this IRS worksheet on page 15.

https://www.irs.gov/pub/irs-pdf/i1040tt.pdf

If you are using the CD/Download software, go to forms mode and open the Form 1040 or Form 1040-SR Worksheet. Between lines 15 and 16 there is a Tax Smart Worksheet with 7 checkboxes. The box that is checked shows you which of the 7 possible methods was used to calculate your tax. Then you can look for the appropriate worksheet for that method. But if the Tax Table or Tax Computation Worksheet was used, there is no worksheet. Those are simple standardized methods that do not require a worksheet.

taxlady28Answer

The effective tax rate that TurboTax computes has no relation to the rate of tax that you actually paid. It is a very confusing figure that causes a lot of questions and I wish it would just go away.