Marginal Rate is increased 10%

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tarnation
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Marginal Rate is increased 10%

Post by tarnation »

I thought my TaxAct was messed up, when I entered the interest from a 1099INT, I noticed that our amount due increased by 32% of the amount input. Very strange since we are in 22% bracket this year. After double checking everything and going through the 1040 it was the rebate that was changing also.
Googling found this https://www.thetaxadviser.com/issues/20 ... ities.html
I finally figured out that we are in the super "sweet" spot, where our recovery rebate credits are both phased out for a total of 10% on top of the 22%.
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FrugalProfessor
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Re: Marginal Rate is increased 10%

Post by FrugalProfessor »

Same here (5% phase out region x 2 stimulus = 10% increase in MTR).

I'm used to wonky tax code implications so I realized this the moment I read about the first stimulus.

The tax code is riddled with nonsense once you peek under the hood a bit.
I blog here: https://www.frugalprofessor.com/
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BrandonBogle
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Re: Marginal Rate is increased 10%

Post by BrandonBogle »

Sorry to go off-topic here, but does this mean that both stimulus payments should be considered part of tax year 2020? The first round arrived very early via direct deposit. For TY 2019, I had a balance due I paid in July 2020 via direct debit. I guess the IRS won't use the direct debit account for refunds, so the second round of stimulus says it was being mailed around Jan 6th. I haven't gotten it yet. If this is for TY 2020, I would then claim it on my return, correct?
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anon_investor
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Re: Marginal Rate is increased 10%

Post by anon_investor »

BrandonBogle wrote: Tue Jan 26, 2021 11:44 pm Sorry to go off-topic here, but does this mean that both stimulus payments should be considered part of tax year 2020? The first round arrived very early via direct deposit. For TY 2019, I had a balance due I paid in July 2020 via direct debit. I guess the IRS won't use the direct debit account for refunds, so the second round of stimulus says it was being mailed around Jan 6th. I haven't gotten it yet. If this is for TY 2020, I would then claim it on my return, correct?
There is a worksheet for TY2020 (it asks about stimulus round 1 and 2 received), and a line on Form 1040 (for how much extra you are entitled to as a tax credit). If you use Turbo Tax they have interview questions for it when you do your Federal review.
marcopolo
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Re: Marginal Rate is increased 10%

Post by marcopolo »

i think a lot of tax credits and deductions that have phase outs work this way. This is really no different, is it?
Once in a while you get shown the light, in the strangest of places if you look at it right.
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anon_investor
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Re: Marginal Rate is increased 10%

Post by anon_investor »

marcopolo wrote: Tue Jan 26, 2021 11:49 pm i think a lot of tax credits and deductions that have phase outs work this way. This is really no different, is it?
They do, but it sounds like the OP was right in that unfortunate "sweet spot" to lose a bunch of credits. Once someone gets to a certain income level, many credits have long since phased out so, additional income does have a nasty cliff.
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BrandonBogle
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Re: Marginal Rate is increased 10%

Post by BrandonBogle »

anon_investor wrote: Tue Jan 26, 2021 11:48 pm
BrandonBogle wrote: Tue Jan 26, 2021 11:44 pm Sorry to go off-topic here, but does this mean that both stimulus payments should be considered part of tax year 2020? The first round arrived very early via direct deposit. For TY 2019, I had a balance due I paid in July 2020 via direct debit. I guess the IRS won't use the direct debit account for refunds, so the second round of stimulus says it was being mailed around Jan 6th. I haven't gotten it yet. If this is for TY 2020, I would then claim it on my return, correct?
There is a worksheet for TY2020 (it asks about stimulus round 1 and 2 received), and a line on Form 1040 (for how much extra you are entitled to as a tax credit). If you use Turbo Tax they have interview questions for it when you do your Federal review.
Thanks. I'm still waiting on my W2 and a mortgage 1099, so I while I have TurboTax 2020, I haven't loaded it since December. I was unsure if they were going to treat all second stimulus payments as TY2020 or if they would use the date on the Get My Rebate lookup tool, which lists a 2021 date for me. Sounds like the former.
an_asker
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Re: Marginal Rate is increased 10%

Post by an_asker »

BrandonBogle wrote: Wed Jan 27, 2021 12:12 am
anon_investor wrote: Tue Jan 26, 2021 11:48 pm
BrandonBogle wrote: Tue Jan 26, 2021 11:44 pm Sorry to go off-topic here, but does this mean that both stimulus payments should be considered part of tax year 2020? The first round arrived very early via direct deposit. For TY 2019, I had a balance due I paid in July 2020 via direct debit. I guess the IRS won't use the direct debit account for refunds, so the second round of stimulus says it was being mailed around Jan 6th. I haven't gotten it yet. If this is for TY 2020, I would then claim it on my return, correct?
There is a worksheet for TY2020 (it asks about stimulus round 1 and 2 received), and a line on Form 1040 (for how much extra you are entitled to as a tax credit). If you use Turbo Tax they have interview questions for it when you do your Federal review.
Thanks. I'm still waiting on my W2 and a mortgage 1099, so I while I have TurboTax 2020, I haven't loaded it since December. I was unsure if they were going to treat all second stimulus payments as TY2020 or if they would use the date on the Get My Rebate lookup tool, which lists a 2021 date for me. Sounds like the former.
I am unsure if I am understanding you right or not but ...

If it is your understanding that you necessarily have to claim a stimulus payment, that is incorrect. In other words, if you got a stimulus payment of $1,000 and per your 2020 income, you should have received <= $1,000, you do not need to do anything.

You need to file on your return only if you got $1,000 and you should have received, say, $1,200 based on your 2020 income!
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BrandonBogle
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Re: Marginal Rate is increased 10%

Post by BrandonBogle »

an_asker wrote: Wed Jan 27, 2021 12:44 am I am unsure if I am understanding you right or not but ...

If it is your understanding that you necessarily have to claim a stimulus payment, that is incorrect. In other words, if you got a stimulus payment of $1,000 and per your 2020 income, you should have received <= $1,000, you do not need to do anything.

You need to file on your return only if you got $1,000 and you should have received, say, $1,200 based on your 2020 income!
I should have received $600 and nothing has arrived yet. In another thread, many folks have said the same. So I’m not alone.
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anon_investor
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Re: Marginal Rate is increased 10%

Post by anon_investor »

an_asker wrote: Wed Jan 27, 2021 12:44 am
BrandonBogle wrote: Wed Jan 27, 2021 12:12 am
anon_investor wrote: Tue Jan 26, 2021 11:48 pm
BrandonBogle wrote: Tue Jan 26, 2021 11:44 pm Sorry to go off-topic here, but does this mean that both stimulus payments should be considered part of tax year 2020? The first round arrived very early via direct deposit. For TY 2019, I had a balance due I paid in July 2020 via direct debit. I guess the IRS won't use the direct debit account for refunds, so the second round of stimulus says it was being mailed around Jan 6th. I haven't gotten it yet. If this is for TY 2020, I would then claim it on my return, correct?
There is a worksheet for TY2020 (it asks about stimulus round 1 and 2 received), and a line on Form 1040 (for how much extra you are entitled to as a tax credit). If you use Turbo Tax they have interview questions for it when you do your Federal review.
Thanks. I'm still waiting on my W2 and a mortgage 1099, so I while I have TurboTax 2020, I haven't loaded it since December. I was unsure if they were going to treat all second stimulus payments as TY2020 or if they would use the date on the Get My Rebate lookup tool, which lists a 2021 date for me. Sounds like the former.
I am unsure if I am understanding you right or not but ...

If it is your understanding that you necessarily have to claim a stimulus payment, that is incorrect. In other words, if you got a stimulus payment of $1,000 and per your 2020 income, you should have received <= $1,000, you do not need to do anything.

You need to file on your return only if you got $1,000 and you should have received, say, $1,200 based on your 2020 income!
To be clear on Form 1040 there is a line where you list how much stimulus extra stimulus you should get (which is received as a tax credit). There is an IRS worksheet that helps calculate it (Turbo Tax has interview questions for this), where you input how much stimulus you actually received and based on your 2020 AGI + # of kids, it helps calculate how much additional stimulus you are entitled to. Since the actual amount entitled to is based on 2020 AGI, and stimulus checks (or DD) were issued based on 2018 or 2019 AGI, there may be a mismatch.

https://blog.turbotax.intuit.com/tax-de ... dit-48681/
bberris
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Re: Marginal Rate is increased 10%

Post by bberris »

My Fed tax bracket is 12 % at the top, I pay less than 1,000 fed tax, and my marginal rate is well over 30 % including state. The stimulus payment phase out was not reached.

A word of warning to the Roth converters.
AnEngineer
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Re: Marginal Rate is increased 10%

Post by AnEngineer »

FrugalProfessor wrote: Tue Jan 26, 2021 10:31 pm Same here (5% phase out region x 2 stimulus = 10% increase in MTR).

I'm used to wonky tax code implications so I realized this the moment I read about the first stimulus.

The tax code is riddled with nonsense once you peek under the hood a bit.
The 5% phase out should not be doubled if filing together. Can you explain?

Edit: nevermind, you meant two stimulus payment times.
Last edited by AnEngineer on Wed Jan 27, 2021 7:43 am, edited 1 time in total.
MikeG62
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Re: Marginal Rate is increased 10%

Post by MikeG62 »

tarnation wrote: Tue Jan 26, 2021 10:07 pm I thought my TaxAct was messed up, when I entered the interest from a 1099INT, I noticed that our amount due increased by 32% of the amount input. Very strange since we are in 22% bracket this year. After double checking everything and going through the 1040 it was the rebate that was changing also.
Googling found this https://www.thetaxadviser.com/issues/20 ... ities.html
I finally figured out that we are in the super "sweet" spot, where our recovery rebate credits are both phased out for a total of 10% on top of the 22%.
If you qualified for and received the stimulus based upon your 2019 income and now based upon your 2020 income you would/do not, there is no refund of the excess stimulus you received. Seems like something is wrong with what you input or the software needs to be updated.

From the article in your link:

"For example, if a married couple with two children receive the full advanced refund of $3,400 based on 2019's AGI, but their income increases to over $150,000 this year, they may be concerned that they will receive a surprise bill when filing their taxes next year, as the credit they already received begins to phase out. While the wording in the CARES Act is somewhat ambiguous, a Congressional Research Service report clarifies that the CARES Act does not require taxpayers to repay any advanced refund payments if their 2020 AGI exceeds the income limits for the refund credit as calculated on a 2020 return."
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BrandonBogle
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Re: Marginal Rate is increased 10%

Post by BrandonBogle »

MikeG62 wrote: Wed Jan 27, 2021 7:32 am
tarnation wrote: Tue Jan 26, 2021 10:07 pm I thought my TaxAct was messed up, when I entered the interest from a 1099INT, I noticed that our amount due increased by 32% of the amount input. Very strange since we are in 22% bracket this year. After double checking everything and going through the 1040 it was the rebate that was changing also.
Googling found this https://www.thetaxadviser.com/issues/20 ... ities.html
I finally figured out that we are in the super "sweet" spot, where our recovery rebate credits are both phased out for a total of 10% on top of the 22%.
If you qualified for and received the stimulus based upon your 2019 income and now based upon your 2020 income you would/do not, there is no refund of the excess stimulus you received. Seems like something is wrong with what you input or the software needs to be updated.

From the article in your link:

"For example, if a married couple with two children receive the full advanced refund of $3,400 based on 2019's AGI, but their income increases to over $150,000 this year, they may be concerned that they will receive a surprise bill when filing their taxes next year, as the credit they already received begins to phase out. While the wording in the CARES Act is somewhat ambiguous, a Congressional Research Service report clarifies that the CARES Act does not require taxpayers to repay any advanced refund payments if their 2020 AGI exceeds the income limits for the refund credit as calculated on a 2020 return."
If I am reading this right, tarnation is filing recovery rebate credits for both stimulus payments. This would mean they never got the first round of payments, bringing them into the “sweet spot” of having both payments impacted. The provision highlighted wouldn’t apply since the stimulus payment wasn’t received to have an overpayment associated with it.
an_asker
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Re: Marginal Rate is increased 10%

Post by an_asker »

MikeG62 wrote: Wed Jan 27, 2021 7:32 am
tarnation wrote: Tue Jan 26, 2021 10:07 pm I thought my TaxAct was messed up, when I entered the interest from a 1099INT, I noticed that our amount due increased by 32% of the amount input. Very strange since we are in 22% bracket this year. After double checking everything and going through the 1040 it was the rebate that was changing also.
Googling found this https://www.thetaxadviser.com/issues/20 ... ities.html
I finally figured out that we are in the super "sweet" spot, where our recovery rebate credits are both phased out for a total of 10% on top of the 22%.
If you qualified for and received the stimulus based upon your 2019 income and now based upon your 2020 income you would/do not, there is no refund of the excess stimulus you received. Seems like something is wrong with what you input or the software needs to be updated.

From the article in your link:

"For example, if a married couple with two children receive the full advanced refund of $3,400 based on 2019's AGI, but their income increases to over $150,000 this year, they may be concerned that they will receive a surprise bill when filing their taxes next year, as the credit they already received begins to phase out. While the wording in the CARES Act is somewhat ambiguous, a Congressional Research Service report clarifies that the CARES Act does not require taxpayers to repay any advanced refund payments if their 2020 AGI exceeds the income limits for the refund credit as calculated on a 2020 return."
OP is probably among the few who never got the stimulus though, per 2020 income, he/she should have. And the fact that adding interest income a) increases taxes by 22% AND b) reduces the stimulus amount by some percent (10%for OP) of this added income makes sense as well.

Let's put it this way. If the stimulus is phased out from $2,000 at $150,000 income to $0 at $160,000 income, each $1,000 additional income will raise taxes by the marginal tax bracket rate PLUS you would lose $200 of the surplus which would be an additional "latent" 20% marginal tax bracket rate.
MikeG62
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Re: Marginal Rate is increased 10%

Post by MikeG62 »

BrandonBogle wrote: Wed Jan 27, 2021 8:36 am
MikeG62 wrote: Wed Jan 27, 2021 7:32 am
tarnation wrote: Tue Jan 26, 2021 10:07 pm I thought my TaxAct was messed up, when I entered the interest from a 1099INT, I noticed that our amount due increased by 32% of the amount input. Very strange since we are in 22% bracket this year. After double checking everything and going through the 1040 it was the rebate that was changing also.
Googling found this https://www.thetaxadviser.com/issues/20 ... ities.html
I finally figured out that we are in the super "sweet" spot, where our recovery rebate credits are both phased out for a total of 10% on top of the 22%.
If you qualified for and received the stimulus based upon your 2019 income and now based upon your 2020 income you would/do not, there is no refund of the excess stimulus you received. Seems like something is wrong with what you input or the software needs to be updated.

From the article in your link:

"For example, if a married couple with two children receive the full advanced refund of $3,400 based on 2019's AGI, but their income increases to over $150,000 this year, they may be concerned that they will receive a surprise bill when filing their taxes next year, as the credit they already received begins to phase out. While the wording in the CARES Act is somewhat ambiguous, a Congressional Research Service report clarifies that the CARES Act does not require taxpayers to repay any advanced refund payments if their 2020 AGI exceeds the income limits for the refund credit as calculated on a 2020 return."
If I am reading this right, tarnation is filing recovery rebate credits for both stimulus payments. This would mean they never got the first round of payments, bringing them into the “sweet spot” of having both payments impacted. The provision highlighted wouldn’t apply since the stimulus payment wasn’t received to have an overpayment associated with it.
an_asker wrote: Wed Jan 27, 2021 9:30 am
OP is probably among the few who never got the stimulus though, per 2020 income, he/she should have. And the fact that adding interest income a) increases taxes by 22% AND b) reduces the stimulus amount by some percent (10%for OP) of this added income makes sense as well.

Let's put it this way. If the stimulus is phased out from $2,000 at $150,000 income to $0 at $160,000 income, each $1,000 additional income will raise taxes by the marginal tax bracket rate PLUS you would lose $200 of the surplus which would be an additional "latent" 20% marginal tax bracket rate.
Got it. I missed that they had not received any stimulus payments in 2020 (did not qualify based upon 2018(9) return filed).
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