Tax Bracket Question

[scrabbler1]

While working on my taxes, I found something strange. Could it be an error in the tax instruction booklet for Form 1040? Or is it just a quirk which didn't exist in prior years?

In prior years, the tax brackets in the rate schedules shown near the very end of the main instruction booklet were the same as the implied tax brackets shown in the Qualified Dividends and Capital Gains Tax worksheet. The brackets in both sections were indexed, so they rose a little bit each year. But they did match each other.

This time, however, they don't quite match. On page 40 of the instruction booklet is the QDCGTW, the amount to enter on Line 8 is $38,600 for single, and $77,200 for MFJ, for example. These are used to determine how much investment income is taxed at 0%. But in the tax rate schedules shown on Page 113 of the same booklet, those tax brackets are $38,700 and $77,400. Why are they slightly different this time?

I only noticed this because in the skeleton spreadsheet I use to do the calculations, I enter the income cutoff once and cell address it later, so I don't have to remember to change the same number twice when I update it from one year to the next.

If these seemingly identical tax brackets are now a little different, is there a reason for it? Or did the IRS somehow make a mistake by creating slightly different tax brackets which had been the same in prior years? I guess I'll have to change my spreadsheet to break the link between two income amounts which had always been the same before.

 

[cathy63]

It's because the new tax law sets different thresholds for the top of the 12% income tax bracket and the top of the 0% capital gains tax bracket. In prior years these numbers were the same.

 

[pb4uski]

^^^ Exactly. In 2017 and prior the preferenced income brackets (for qualified dividends and LTCG) aligned perfectly with the top of the 15% ordinary income tax bracket. With the new tax law they made them $100 different for a single and $200 different for a couple. Stoopid.

 

[jebmke]

The "error" if there is one is in the code, not the IRS documents. I remember seeing this when I read the bill. My personal opinion is that this is a drafting error but who knows.

 

[pb4uski]

I dunno... if it were a drafting error then it should have been an easy fix that would have been done by now. I do remember from when the bill was being deliberated that the amounts were different.

 

[clobber]

We are all aware of how complex USA Taxes are. Now they have just become stupid beyond belief. This is one example.

Another is how the withholding allowance is now just a made up number. It used to equal the amount of a personal exemption. But now there are no exemptions so we just make up a number as described by the IRS here in the second question/answer.

 

[scrabbler1]

Thanks to those who replied. Yes, pb4uski, it is stoopid!

 

[scrabbler1]

I was trying to find out what the QDLTCG bracket will be in 2019. The 12% ordinary income bracket is going from $38,700 to $39,475 in 2019, a 2.0% rise. What will the top of the 0% QDLTCG bracket become? It is $38,600 in 2018, will it simply rise to $39,375 in 2019 (also a 2.0% rise), remaining $100 less than the top of the 12% ordinary income bracket?

 

[Lakedog]

Yes, for 2019 it is $39,375 (still $100 less than 12% bracket).

 

[kaneohe]

We are all aware of how complex USA Taxes are. Now they have just become stupid beyond belief. This is one example.

Another is how the withholding allowance is now just a made up number. It used to equal the amount of a personal exemption. But now there are no exemptions so we just make up a number as described by the IRS here in the second question/answer.

Perhaps the w/h allowance is just being kept as a placeholder........like the line numbers on the new schedules (for lines that remain and for lines that have been reserved) to make it easier to reverse the "wonderful" simplification that happened.