I just did my taxes and I am perplexed. I earned a whopping $18 interest on my savings account last year and like a good citizen I declared that on my taxes. Can anyone explain to me why the amount I owed the state (NY) jumped $12, per TurboTax, just because I said I made $18 interest?
Turbotax should be able to print out a tax return for you. Print two returns, one with the $18 in interest, and the other without it. Then you should be able to step through all the lines of the return one by one and spot where they start to deviate.
My guess is that barely put you into a higher level with higher taxes. Happens all the time actually and isn’t unusual.
Yes, but the higher rate is only charged to money above that threshold. Thus, it unlikely that he would get taxed at a 66% rate. I would imagine there is a mistake somewhere, or some weird loophole where $x under a certain number don’t get taxed, but once you pass that, you get taxed on the whole thing. Or maybe the spot where you put the investment income was supposed to be offset by other deductions you got, but instead of calculating the sum of multiple things, you just put $18, this negating the other inputs.
Unless New York State has a top marginal rate of 67%, then more than unusual to the point of impossible. Income taxes at the federal level and in New York have marginal brackets, so you can’t get “bumped into a higher bracket” and pay higher taxes on your entire income.
My guess is that there is some credit that you are claiming that you are perhaps just over the cutoff for in terms of total income with the added income. I agree with the suggestion to make two returns and see where the deviation is.
No, that’s not how it works. You pay the higher rate on the amount that’s above the level you just passed, not on the entire amount.
It’s possible that the interest income made you ineligible for a deduction of some sort. Are you sure the $12 tax is on the interest you reported, though? They might just have raised your taxes by a fraction.
There is one thing that may work that way. In some states instead of saying “x% of your income” there is a tax table that says “if your income is between A and B, pay X amount of money. if your income is between B and C, pay Y amount of money, &c” where the bounds are a few hundred dollars apart and X and Y are the tax amounts for the middle of their respective ranges. (Presumably this is because asking any random person to compute the tax on a certain amount of income given a mathematical formula is a pain in the ass.)
That means that if your income is close to, but slightly less than B, you pay X, which is slightly less than the natural tax rate for your income, by approximately the tax on half the interval width. But if you increase your income so it still close to, but slightly larger than B, you pay Y, which is slightly larger than the natural tax rate for your income (again by approximately the tax on half the interval width.) The tax on that difference is about the magnitude that we are talking about here.
Could that be the issue?
I did my taxes last week, and my AGI was $xx100.63, which is rounded up to $xx101. If I earned 14 cents less last year, my AGI would be rounded as $xx100, and I’d be paying $13 less in tax as the 1040EZ form’s tax table is structured something like:
$xxx50-xx100: $25 tax
$xx101-xx150: $38 tax
So yes, fourteen cents can cost thirteen dollars in tax.
Income levels therefore tax amounts in the tax tables are broken into $50 increments - 10,000-10,049, next level is 10,050 to 10, 099 etc. If your income was $10,049 you pay the tax shown for that level. If you receive %1 interest, you pay tax at the 10,050-10,099 level.
I once paid an additional $4 in tax on $5 interest income in just such circumstance.
Check out the NY state income tax tables on pages 48-55. Just for good measure, let’s go to the end of the table, where the marginal tax rate is highest. Suppose CheeseDonkey’s added $18 in interest took his taxable income from $63,950 to $63,968. His tax would only have increased by $3. Yet he’s telling us that TurboTax has calculated $12 in additional income tax.
If his taxable income is higher than $65K, then he’ll be using the algorithm on page 56, so the calculation will be more precise; at worst, he would pay an extra $1.59 (8.82% - the highest marginal rate - of his $18).
I’m now very curious to see how TurboTax came up with $12.
For a minute I thought I could make the numbers work using the boxes on page 57. For some reason you’re supposed to pay (income over 100,000 * ((your taxable income * your highest bracket) - your actual tax))/50000. But the difference in his taxes would have to be $30,000 for that to work. There might be an income level where the numbers would look like that but I’m going to assume that’s not what’s at issue here.
In what way did it jump?
All the other posters are presuming that you put all your info into TurboTax except for the interest, and then when you put the interest in, that’s when it jumped.
But I’m wondering if your salary stayed the same, and you are comparing this year’s tax to last year’s tax. If so, then it is entirely possible that the tax went up because the tax rates have changed, and that you’d be paying more even if you didn’t get any interest.
That’s how I read it.
TurboTax has a running counter of what you owe. Before I entered this year’s interest, what I owed was $12 less than what I owed after I entered the interest, so they presume correctly.
That would be a 67% Bracket.
Any chance you hit the limit on a state tax credit - like this one? New York State household credit
More magic numbers here: Empire State child credit
Didja print out the two different versions of your return and do a side-by-side comparison?