Incorrect Tax Brackets in Tax Planner Yielding Incorrect Estimated Tax
To make a long story short and summarize a lot of work, the tax planner is not calculating the correct amount of tax in my planning case (2023 Married Filing Jointly). The 32% marginal rate should be applied to additional taxable income over $364,200. My base case including a Roth conversion yields Taxable Income of $364,200, income tax of $72,601, Other Taxes of $1,140, total tax of $73,741. I have no reason to suspect any errors, all seems correct. However as I look at larger Roth conversions I can add up to $17,763 in other income and Quicken continues to calculate the additional tax at 24%. For example, in a planning case with a $17,609 larger Roth conversion the Tax Planner yields a taxable income of $381,809, which is correct. However the income tax calculated is $76,827, Other Taxes of $1,140, total tax of $77,967. Thus the incremental tax on $17,609 more income is $4,446, which is 24%. The incremental tax should be calculated at 32%, which would yield an additional tax of $5,635. Finally, at additional conversions of $17,764 and more, the rate rises above 24% and the correct 32% is applied to Taxable Income above $382,055. Whatever algorithm they have programmed does not correctly reflect the IRS brackets - instead of immediately going from 24% to 32% at the bracket boundary above $364,200, it is 24% at $381,963 and increases to the full 32% above $382,055. I wouldn't be bothered by this strange transition if it occurred near where the actual bracket is supposed to change at $364,200.
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I just verified using my Tax Planner test file that the planner is correctly calculating the tax at 32% for regular taxable income above $364,200. I manually input $364,200 in IRA input, $27,700 in Spouse wages. Rate shown was 32%. Then added $100 to My wages and the tax went up by $32 as expected. So the planner calculations are correct for the scenario you describe.
The fact that you show Other Taxes of $1,140 indicates you have $30K of investment income entered in the planner. Some portion of that is QDI and/or long-term capital gains that are taxed at a 15% rate for the AGI income level you denote. The portion of income taxed at the 15% rate is excluded from the calculation of regular income tax rates based on the brackets. That is likely the cause of your confusion, but the projected tax and rates applied in Quicken are most likely correct.
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Thanks, you are exactly correct. Appreciate the explanation.
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