Non existent tax rate in Tax Planner

jlukes
jlukes Quicken Windows Subscription Member ✭✭
edited October 30 in Budgeting and Planning Tools (Windows)

While trying various scenarios in Other Income the Tax Planner shows a non existent marginal tax rate of 26% but displays the correct tax rate of 24% when increasing the amount.

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  • Quicken Anja
    Quicken Anja Moderator mod

    Hello @jlukes,

    Thank you for reporting this issue with the Tax Planner. To help us investigate further, could you please provide screenshots showing the scenario where the Tax Planner displays the 26% rate as well as the one showing the correct 24% rate? This will help us better understand what’s happening.

    If needed, please refer to this Community FAQ for instructions on how to attach a screenshot. Alternatively, you can also drag and drop screenshots to your response if you are not given the option to add attachments.

    Thank you!

    -Quicken Anja
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  • markus1957
    markus1957 Quicken Windows Subscription SuperUser, Windows Beta Beta

    It's not a bug. What you are seeing is the calculation of the effective tax rate you will pay for the next dollar of regular income. There are a couple of scenarios where this happens. Mostly it happens when regular income is low enough that a portion of long-term capital gains or qualified dividends are being taxed at the 0% rate. In this case, the next dollar of regular income will bump a dollar of untaxed QDI or LTCG into the 15% rate bucket as well as getting taxed at its tax table rate.

    If you actually do the math, you will see that it works out. To test it, note the tax owed before you add other income. Then add $100 of other income and record the tax owed now. If you divide the additional tax (after minus before) owed by $100, you will see it equates to the "odd" rate you observe. It's a useful tool in cases where the additional income is optional (do I take more than an RMD, sell a STCG position, take on a gig job, etc.) so you can see the actual rate that extra dollar of regular income will cost you when it bumps the dollar of QDI/LTCG out of the 0% rate bucket.

    It can also happen with higher incomes when phase outs come into play.

  • jlukes
    jlukes Quicken Windows Subscription Member ✭✭

    Thanks to both of you for your responses. I did what Marcus1957 suggested and saw that the increased rate was actually representing the impact of the addition of a Net Investment Income Tax (NIIT). Excluding that NIIT tax impact the rate remained at 22%. So, I agree that the rate shown represents the impact of the change and not a change in the IRS rate.

    The bottom line here is that by testing the impact of adding another $10K of Other Income I was able to see that if I did that I'd be walking into a Net Investment Income Tax addition and that would change my effective rate. A nice feature of the Tax Planning feature!

  • Quicken Anja
    Quicken Anja Moderator mod
    edited September 30

    @jlukes Thank you for following up and sharing your findings! I’m glad to hear that Marcus’ explanation helped clarify the behavior and that you were able to see how the NIIT affects the effective tax rate.

    Thanks again for taking the time to test it and share your observations with the community!

    -Quicken Anja
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