Question

Is effective tax rate calculation misleading or just wrong?

Forum|Forum|7 years ago
June 3, 2019
1 reply
0 views

In the Tax History report, Turbotax calculates an effective tax rate, but does not include 'Other Taxes' in that calculation. The 3.8% Net Investment Income Tax happens to be lumped into 'Other Taxes' on the IRS forms, hence is not used in TurboTax's effective tax calculation.

Since the additional 3.8% is an income tax on investment income, shouldn't it be included in the effective tax rate calculation?

TurboTax Home & Biz Mac

J

jrbader1

I just spoke with a TurboTax rep and he cleared it up for me. My pdf output was the following:

===

Adjusted Gross Income $ 136,999.00

Taxable Income $ 110,565.00

Total Tax $ 25,607.00

Total Payments/Credits $ 33,946.00

Amount to be Refunded $ 8,339.00

Effective Tax Rate 14.04%

===

The way they end up with 14% is {Refund / (Total Tax + Total Payments/Credits)} = 8339 / (25,607+33,946) = 14%.

Not only does this in no way reflect my effective tax rate, but it is a completely meaningless metric: My refund as a percentage of the sum of my tax and my payments. Seriously?

I can only conclude that this is a bug in their software and I hope that this comment puts those users at ease that were similarly concerned when they saw their calculated effective tax rate.

R

Rebel-Bob

Can't agree more. That calculation makes absolutely no sense.

Seems to me that "Effective Tax Rate" should be Total Tax/Adjusted Gross Income or 18.69% in your case.