2013 tax rates/brackets

[GrayHare]

Just to clarify - my understanding is that, if all one's taxable income (married filing jointly) is LTCG and qualified dividends, the tax would be 0% on the first 72.5K and 15% on the amount over 72.5 up to 450K, and this income would still be taxed at these same rates under the AMT. Is this correct?

No, it sounds like if your ordinary income is $0, the tax rate on all your LTCG or qualified dividends, no matter how much, is 0%. How the new 3.8% health care tax figures into this I've not yet studied.

 

[kaneohe]

No, it sounds like if your ordinary income is $0, the tax rate on all your LTCG or qualified dividends, no matter how much, is 0%. How the new 3.8% health care tax figures into this I've not yet studied.

a not uncommon, but unfortunately incorrect perception. See the chart here
http://www.early-retirement.org/forums/f28/rira-conversion-and-taxes-63673.html that shows the 0% stops at the top of the 15% bracket and the 15% rate begins.

There's the 3.8% surtax at the 250K level (MFJ) and another change at 400K.

Using tax software or a tax calculator like Taxcaster is always a good thing to do to doublecheck .

 

[kaneohe]

Just to clarify - my understanding is that, if all one's taxable income (married filing jointly) is LTCG and qualified dividends, the tax would be 0% on the first 72.5K and 15% on the amount over 72.5 up to 450K, and this income would still be taxed at these same rates under the AMT. Is this correct?

You might want to do the AMT calculation in Taxcaster to see what happens.
I know under certain conditions, the same rates apply for LTCG/QDIV but I am not sure that always applies.

 

[Mulligan]

Not my business, but I'm wondering about those numbers and trying to put it in perspective.

The 28% bracket starts at $87K, so if most of your earned money is in the 28% bracket, you must be making twice that. Pretty sweet for a part time gig!

SS stops being taxed around $113K, so the expiration of the SS payroll tax break is going to cost you less than $2300. Is that really a deal breaker at your income level, or just the push out the door you are looking for? The latter is certainly fine, but let's call it what it is.

Even ignoring when SS tax stops and that some of your income is taxed at less than 28%, 28% fed+7.65% SSA + 6% state is just under \42%. I don't know what these other taxes are and what the pension tax credit loss amounts to, but it sounds like your transportation costs must be enormous! Just saying it doesn't seem to add up. If you are talking about property taxes, that has nothing to do with income.

Are you maybe counting 401K and ESPP deductions in that 70% not taken home? You may not be able to spend that money on groceries today, but eventually you will be able to, so that's not really right to take those amounts away from what you call earned money.

If you really didn't want to get into this, I can delete this. It wasn't really to pick on you, but when I saw a follow up comment that there's not much incentive for single people to work, I felt like it was overblown. It's a 2% increase, and really less than that since there's a cap, and it just gets you back to where you were before the decrease.

My situation may be unique,RunningBum. But my pension and other side income and interest butt me up just under $87,000. My part time job pays $30k, so almost all of that money is taxed at 28%, so yes, my math was 42%, also like yours. I incur about $2.5k yearly in gas because round trip it's about 100 miles, 3 days a week (very easy drive, though). At about 88k the pension tax credit is phased out and completely lost. The trouble is the year to year job goes from summer to summer, so working one year would cause me to go over AGI, for 2 tax years, or $4k lost. So if I work next year (which I was originally going to but told my boss 1 yr. is it), I would lose the credit for 2 tax years. Here is my math: 30k income minus 42% taxes equals $17400 net. Minus 2.5k gas, and 4k tax credit loss equals $10900 cash in hand. That is 36% so I am a little off (first time I actually did the math on paper) but not enough to change my mind that it's not worth my time to work for 36 cents on the dollar (I guess if I factored true wear and tear on car, it would be lower, still).
Now, I will be able to preserve my tax credit this past tax year because I was able to max out my 529 fund to just get it under the AGI limit. But next year I can't as the 529 account will be fully funded. I could put the money in a tax deferred account, but my pension income would force that money to be taxed at the higher rate anyways when it's withdrawn, so I would rather have it now, and be done with it. Like I said, my situation is probably unique, but working after retirement for me has little incentive, dollar wise.

 

[audreyh1]

Just to clarify - my understanding is that, if all one's taxable income (married filing jointly) is LTCG and qualified dividends, the tax would be 0% on the first 72.5K and 15% on the amount over 72.5 up to 450K, and this income would still be taxed at these same rates under the AMT. Is this correct?

Yes, except for the Medicare 3.8% additional that will kick in at $250K bumping the total rate up to 18.8%

So your statement is true up to $250K

 

[audreyh1]

No, it sounds like if your ordinary income is $0, the tax rate on all your LTCG or qualified dividends, no matter how much, is 0%. How the new 3.8% health care tax figures into this I've not yet studied.

Nope. Once you hit $70.7K total income, you start paying at the 15% rate on LTCG and qualified dividends that exceed $70.7K.

 

[RunningBum]

Mulligan, thanks for sharing. I'd be calling it quits as well.

 

[Mulligan]

Mulligan, thanks for sharing. I'd be calling it quits as well.

I have to admit Running, that I learned a lesson out of this as I in the past only really paid attention to my marginal rate before retiring. Losing the tax credits is what bothered me the most. For my circumstances including all costs, the higher a part time job pays me, the higher percentage of income I keep, the lower the income I make, the lower the percentage of income I keep. Backwards from what most people would deal with income wise. I hadn't thought of this until now, but if the job had paid 10k a year, I would have literally lost money working.