Poll:What's your 2020 effective tax rate?

[Dash man]

We’re hovering around 25% Federal. Between Roth conversions and a last set of options to exercise, we are well into the 32% bracket.

 

[qwerty3656]

I'm going to make some adjustments to end up at the top of the 12% bracket.

 

[pb4uski]

^^^ If you have any qualified dividends or LTCG be careful... there is a $250 difference between the top of the 0% qualified dividends/LTCG tax bracket and the 12% ordinary income tax bracket where additional ordinary income it taxed at 27% because it pushes qualified income from the 0% tax bracket to the 15% tax bracket. Not that $37.50 is a huge deal but just something to be aware of.

To avoid this, end up with $40k of taxable income if single or $80k if MFJ.

 

[Dtail]

^^^ If you have any qualified dividends or LTCG be careful... there is a $250 difference between the top of the 0% qualified dividends/LTCG tax bracket and the 12% ordinary income tax bracket where additional ordinary income it taxed at 27% because it pushes qualified income from the 0% tax bracket to the 15% tax bracket. Not that $37.50 is a huge deal but just something to be aware of.

To avoid this, end up with $40k of taxable income if single or $80k if MFJ.

Yup, converted Roth for my DGF up to 40k.

 

[bada bing]

Fed 26.2% for 2020. No state income tax.

2020 was the highest income year for me ever. Perfect storm of massive forced overtime due to covid19, held at work later into the year than expected because of regulatory hiccups, and mega-corp's generous, but inflexible severance pay-out. 2021 will be a high earning year because of mega-corp's inflexible lump payout of NQDC. Pauper status from 2022 onward.

 

[karen1972]

9.05% - Including paying back the ACA subsidy as I went over
6.25% - Excluding the ACA subsidy.

 

[rk911]

without looking roughly 14-16%.

 

[audreyh1]

I will let you know maybe in March.

 

[jollystomper]

Preliminary estimates are 10.4% Federal, 5.8% state. Hopefully it will not vary much once the "official" income forms are received and the tax return is updated.

 

[Out of Steam]

Haven't made a full calculation yet, but about 7% Federal. More likely less than more.

 

[Perryinva]

I didn’t answer the poll because while it has traditionally been roughly 14%, (did anyone ask if that included FICA & MED?) 2020 included, starting 2021 I expect it to be lower as this will be the first of what I hope to be many years of a lower effective income tax now that I will never get an earned income check, and never pay FICA or MED. And what about Roth rollovers? That also increases the effective rate now for a lower rate later on. This will be my first year doing rollovers through 2025, unless tax rates are lowered (unlikely) for the current 22%. At any rate, why is this any different than knowing what bracket we are in, besides where in the bracket you are? Everyone at the same place in any bracket is paying the same effective rate, right?

Similarly, I would find it interesting, if the poll existed, at what gross income retirees are living on, (including tax free withdrawals from Roth & HSA) compared to what their gross income was, say, on average the last 5 years working. My projections show I should be living on roughly the same net in retirement for significantly less gross. I know I read here that many pay zero or practically zero, with income of over 100k, which I find fascinating. Naturally, those with decent pensions will still be paying taxes forever once their SS kicks in.

And congratulations to bada bing. Great feeling, right? Getting paid to do nuthin!

 

[CardsFan]

For tax year 2019 it was 5.8%, with Roth conversions to the top of the 12% bracket.

For 2020, I estimate 11-12%, with Roth conversions into the 22% bracket, but below the first IRMAA break point.

Without conversions, it would be 0%.

Federal taxes only.

 

[Perryinva]

DOH! I just reread the poll and somehow missed that the question was for 2020 effective rate, so I voted at 14%, assuming just Federal was the intent. I also pay about 5% state. If I were to include FICA & MED, then the effective rate would be lower some, since this was the first year I only paid FICA through July (severance) and will be the first time in over 35 years I did not max out SS. So even though it was fairly close to the max, everything paid in this year adds a big fat zero to my SS.

 

[SecondCor521]

I didn’t answer the poll because while it has traditionally been roughly 14%, (did anyone ask if that included FICA & MED?) 2020 included, starting 2021 I expect it to be lower as this will be the first of what I hope to be many years of a lower effective income tax now that I will never get an earned income check, and never pay FICA or MED. And what about Roth rollovers? That also increases the effective rate now for a lower rate later on. This will be my first year doing rollovers through 2025, unless tax rates are lowered (unlikely) for the current 22%.

It's a perennial discussion about how to calculate tax rates, but the OP did give a definition in the OP. That's what I used because that's what they asked for. Their definition would exclude OASDI taxes (except maybe SE taxes) and include Roth rollovers to the extent those are taxable (usually 100%).

At any rate, why is this any different than knowing what bracket we are in, besides where in the bracket you are? Everyone at the same place in any bracket is paying the same effective rate, right?

Nope. The tax bracket you're in reflects your marginal rate - the amount you'd pay on the next $1 of income. Effective rate, which is what the OP asked about, is essentially the average of the tax rates on all the $1s which are taxed. So someone near the bottom of the 24% bracket would have a lower effective rate than someone near the top of the 24% bracket, even though their marginal rates would be the same.

 

[Taxman59]

Rediculously high due to the ACA subsidy lost actual taxes are about 15 (combined Fed and state) and the ACA premium add back for another 20%!

 

[unclemick]

23% Married filing jointly. ER'd 1993, age 50 with 250k ballpark net worth. Zilch tax rate.

Fast forward 27 years age 77 net worth way higher and my pals at the IRS are helping me via RMD.

Index funds and time in the market!

Heh heh heh - PLUS! Really cheap, I mean really cheap SOB in early years of ER. The Four Yorkshiremen remains the favorite video posted on this forum. Hindsight says less fear and more spend cause you can't take it with you. ;

 

[PatrickA5]

Around 7%. 2019 was 13% due to Roth conversions.

 

[Cobra9777]

2020 is our 2nd year converting to the top of the 22% bracket. Effective rate is 14.4%. That's up from 13.6% last year because we sold our last rental this year, with most of the gain taxed at 15%. Without conversions and property sales, we are around 5% with just two small pensions and a bunch of 0% QDs and LTCGs. No state income tax.

 

[CardsFan]

For tax year 2019 it was 5.8%, with Roth conversions to the top of the 12% bracket.

For 2020, I estimate 11-12%, with Roth conversions into the 22% bracket, but below the first IRMAA break point.

Without conversions, it would be 0%.

Federal taxes only.

Quoted my self just to add a note.

While effective tax rate is interesting, the incremental tax rate, when doing Roth conversions should also be considered.

In my 2020 estimate above, although the effective tax rate is "only" 11-12%, I estimate the incremental rate for the extra conversion to be about 16%. I looked at going higher with the conversion, but the extra taxes (including IRMAA, which is not strictly a tax, but effectively is) could push the effective rate of the conversion over 24%.

 

[RetireAge50]

2.4% effective 24% marginal (if I count loss of subsidies as a tax).

 

[SecondCor521]

While effective tax rate is interesting, the incremental tax rate, when doing Roth conversions should also be considered.

Right. Although my effective rate was 0.0084%, my marginal rate was 52.625%, which I why I didn't Roth convert any more than I did.

 

[sengsational]

I recall a similar thread last year and having the same problem answering because of inconsistent treatment of tax credits.

Taking the specifics of the OP, I come in with a tax rate of paying 5.5% of line 9 to the treasury. But the fact is that the treasury paid me.

Considering the numerator simply as line 24 includes non-refundable credits, but ignores refundable credits. It all comes from, or goes to the US treasury, so the labeling difference seems arbitrary.

I propose that a more consistent definition would be to subtract the non-payments portion of line 31 from line 24. And also subtract the advanced PTC amount (8962 Line 25). I've tried out this definition and found that no matter what the advanced PTC amount is, it comes to the same tax rate.

And in my case the tax rate is negative 16.1%.

 

[athena53]

3.4% if my preliminary TurboTax estimate is right. Downloading the actual brokerage numbers won't happen for awhile.

Interesting thoughts about Roth conversions. I was kind of looking forward to the refund (basically lower capital gains than anticipated in my Estimated payments) but I should look into that.

 

[grasshopper]

Per TurboTax with everything accounted for 2.94%.

 

[davebarnes]

2019: Fed = 17.5% + State = 4.5%
2020: About the same
Roth conversions are pushing it up