Poll: Your 2021 Taxes Federal Tax Rate

[rk911]

3.38% effective tax rate

nicely done!

 

[rk911]

.19%. We played the game well this year... And managed income one more year for the ACA.

In 2023 I go on Medicare with DH in the rules change.

is that decimal point in the right place

 

[richardf]

Tax questions always confuse me... so I will go with this: The effective tax rate is the percentage of income paid in taxes. The effective tax rate is the overall tax rate paid on earned income. The most straightforward way to calculate effective tax rate is to divide the income tax expense by the earnings (or income earned) before taxes.

We had $0 tax liability in 2021 and that is what we paid. So, I guess the answer is 0%.

Adjusted gross income divided by federal income tax paid on your 1040 is the rate %.

 

[richardf]

Earned Income = $153,863.
(AGI = $150,168)
(Taxable Income = $119,492).
Tax = $19,567.
Tax/Earned Income = 19567/153863 = 12.7%

Javelin cost, $178,000.

 

[Ronstar]

9.08% effective tax rate

 

[Out of Steam]

$650K to $1M is not extremely rare for docs, Megacorp execs, and self-employed business owners so a few >35% responses seem right for the still-employed in this crowd. >35% would be rare for retirees living off pensions, SS and portfolios, though.

The median of the poll so far is between 12-13.99%. This is somewhat skewed because we have early retirees living mainly from after-tax savings because of ACA income limitations.

 

[Magus]

How does anyone have an effective tax rate of over 35%?

W2 income around or above $1M/yr - generally will include (some) VPs & SVPs for mega corps plus C-suite execs would every year plus some of the top end of professionals (lawyers, docs, etc) will get that as well. In retirement it would be almost impossible unless you were living off nothing but non-qual REIT dividends or similar with again close to a million or more a year in that kind of income.

 

[Perryinva]

TurboTax says 2.61% effective tax rate. We did the largest roth conversion ever.

How is that possible unless you only converted a small amount?

 

[pb4uski]

A couple other datapoints that showed up on my newsfeed this morning:

Kamala Harris and her husband earned more than twice as much as Joe Biden and his wife did last year, according to copies of their income tax returns released on Friday.

Harris and the so-called second gentleman, Doug Emhoff, reported a federal adjusted gross income of about $1.7m in 2021, which was about the same they claimed to have earned the prior year.

Joe Biden and the first lady, Jill Biden, cited an income of nearly $611,000, about $4,000 more than they made in 2020, said their tax documents, which were released by the White House.

The vice-president and her husband also reported paying $523,371 in taxes on their income, a rate of 31.6%. For their part, the Bidens reported being taxed $150,439 on their income, meaning the president’s family’s tax rate was 24.6%. ...

 

[Perryinva]

0% might not be good.

I was talking with BIL the other night. He is 0% but is worried about RMDs. It turns out that he has headroom to either withdraw or Roth convert tax-deferred money and fill up his standard deduction so pay no tax on the withdrawal/conversion but is not doing so.

That's a no brainer.

Failure to fully use the headroom is just giving more money to the government later, the exact reason opposite of a 0 effective tax! Those of us with decent pensions will never see these low effective rates posted. I am amazed at how many sub 10% there are. 35% here!!! But I’m glad to pay the tax and have that benefit. So far, while Roth conversions have increased my Roth they haven’t reduced my tIRA at all as they still generate more in a year than I can convert. But any reduction at a reduced rate is a win, I guess.

 

[SecondCor521]

How is that possible unless you only converted a small amount?

Not @grasshopper, but I have similar numbers due to nonrefundable tax credits (in my case AOTC). Also, in the context of Roth conversions (and many other things), "large" and "small" are relative terms.

 

[Which Roger]

Failure to fully use the headroom is just giving more money to the government later, the exact reason opposite of a 0 effective tax! Those of us with decent pensions will never see these low effective rates posted. I am amazed at how many sub 10% there are. 35% here!!! But I’m glad to pay the tax and have that benefit. So far, while Roth conversions have increased my Roth they haven’t reduced my tIRA at all as they still generate more in a year than I can convert. But any reduction at a reduced rate is a win, I guess.

I agree that no "free headroom" should be wasted. Beyond that, there are all kinds of reasons to have more/less income and in turn pay more or less in taxes.

When I was working, I couldn't understand how someone could pay so little federal income tax but still live well. But now that I'm ERd, I'm one of those people. Here's one slightly simplified example: A couple has 25k of "regular" income, which is almost identical to the standard deduction. Then they withdraw 150K from a taxable account that is 50% capital gains. They have 175k of spending money, but their federal income is only 75k, and the threshold for paying any CG tax is over 80k. So federal tax liability is 0.

Regarding the "but you'll pay more later", that's true for many people, but if you add ACA subsidies into the mix, it changes the equation even more toward having lower income (and therefore paying less in taxes as a side effect) in the earlier years. And for those who plan on donating big chunks (e.g., via QCDs) when the tax time bomb hits, the situation is much different than for those who want to/need to keep the money or pass it on to heirs. So just like just about every other financial discussion on this forum, the answer is "it depends".

 

[jldavid47]

W2 income around or above $1M/yr - generally will include (some) VPs & SVPs for mega corps plus C-suite execs would every year plus some of the top end of professionals (lawyers, docs, etc) will get that as well. In retirement it would be almost impossible unless you were living off nothing but non-qual REIT dividends or similar with again close to a million or more a year in that kind of income.

I did the math. For someone to pay 35%+ EFFECTIVE tax rate to the Federal government in 2021, TAXABLE income (not AGI) would have to be above $1.8 million for single filers and $3.28 million for MFJ filers. If you have that much income, God bless you. Otherwise, you were wrong or exaggerating when you said your effective Federal tax rate for 2021 was 35% plus.

 

[pb4uski]

I did the math. For someone to pay 35%+ EFFECTIVE tax rate to the Federal government in 2021, TAXABLE income (not AGI) would have to be above $1.8 million for single filers and $3.28 million for MFJ filers. If you have that much income, God bless you. Otherwise, you were wrong or exaggerating when you said your effective Federal tax rate for 2021 was 35% plus.

Math above is right.

 

[drdsunny]

For this poll I will simply use tax due (1040 line 24) divided by total income (1040 line 9). Using that standard our federal effective tax rate is 9.6%.

Let the games begin!

13.8%

 

[Time2]

I have a breakfast buddy that was complaining about how his quarterlies are now $11k, much if that from his RMDs. It just makes me want to Roth convert as fast as I can. My portfolio was growing faster than I could Roth convert, but not lately!

I'd much rather have the growing to fast problem.

 

[TheWizard]

I have a breakfast buddy that was complaining about how his quarterlies are now $11k, much if that from his RMDs. It just makes me want to Roth convert as fast as I can. My portfolio was growing faster than I could Roth convert, but not lately!

Right.
This is why it often makes sense to levelize your AGI to some degree prior to age 72 by doing moderate Roth conversions guided by what your AGI is projected to be for age 72+.

It's an imperfect exercise since we don't know what your portfolio growth will be year to year.

By levelize, I mean having your AGI grow roughly with inflation, which used to be around 3% but right now is double that, or more.

And if you are in the IRMAA tiers, as I was from age 63 on, then it's good if you can target a tier threshold not to exceed. Fortunately, those thresholds increase with inflation each year now...

 

[jkern]

While my effective income tax rate is less than 8%, I spend about five times more in other taxes like Property Tax, Sales Tax, etc.

 

[grasshopper]

How is that possible unless you only converted a small amount?

Converted about the price of a top line Subaru, not exactly BTD

 

[Magus]

I did the math. For someone to pay 35%+ EFFECTIVE tax rate to the Federal government in 2021, TAXABLE income (not AGI) would have to be above $1.8 million for single filers and $3.28 million for MFJ filers. If you have that much income, God bless you. Otherwise, you were wrong or exaggerating when you said your effective Federal tax rate for 2021 was 35% plus.

Mine was right at 30% on a bit over $850k married so I was guestimating a bit - $3.28 million seems a bit high but perhaps you are right since the top rate isn't much over 35%, but they would be fairly close to 35% well before that. To be fair, some folks that voted 35%+ might count the extra medicare surcharges on high income earners as part of income tax since that's really what it is. Either way, when you add in state, property, sales and hidden taxes, a million+ in W2 and short term capital gains income will be roughly a 50% total tax rate.

 

[Koolau]

For this poll I will simply use tax due (1040 line 24) divided by total income (1040 line 9). Using that standard our federal effective tax rate is 9.6%.

Let the games begin!

Seems the most appropriate way to calculate. Mine is 3.5%. YMMV

 

[Out of Steam]

Mine was right at 30% on a bit over $850k married so I was guestimating a bit - $3.28 million seems a bit high but perhaps you are right since the top rate isn't much over 35%, but they would be fairly close to 35% well before that. To be fair, some folks that voted 35%+ might count the extra medicare surcharges on high income earners as part of income tax since that's really what it is. Either way, when you add in state, property, sales and hidden taxes, a million+ in W2 and short term capital gains income will be roughly a 50% total tax rate.

Here's a retired NHL player doing a similar breakdown of a professional hockey contract with a $6 million per year top line salary.

https://twitter.com/x/status/1514246460664999942

 

[Dash man]

Federal effective tax rate of 17.59% for 2021. Taxes paid in the low six figures. Getting enough back for the $5,000 in iBonds plus some.
I’m glad this year’s taxes are over. Having played around in cryptocurrency last year, I had no idea the pain they would cause in taxes.

 

[RobbieB]

Yeah, I got the "made big bucks" surprise too. High 5 figures, most I ever paid.

But most I ever made too. And I did buy a Yacht -

Ah life!

 

[Perryinva]

Obviously my not too bright working man retirement plan of saving tax deferred and working for a pension has me paying way too high a rate in taxes, pretty much, forever. Too much of my current income is fully taxable pensions & tIRA (conversions), & mostly taxable SS. And here I thought it was great not paying FICA anymore, and no state tax on SS, but even with all the Roth conversions , my tax bite will still be high compared to most here when RMDs hit, & conversions stop. Sheesh!

I really should have saved WAY more in after tax accounts and learned to maximize LTCG & QDs for retirement. Too late now!