Your 2023 effective tax rate

[FI_RElater]

...much better than earlier years

ours was 6.8%, and of course had 85% of SS being taxed; unfortunately, I didn't get closer on the 0% cap gains (should have sold more) but did do small Roth conversion for spouse (will do much more this year)


Beats the years we had forty-something thousand tax bills for fed, plus additional state; the good thing was at least one spouse maxed out the SS withholding (earliest was June). Those years were painful.

 

[BlueberryPie]

I use H&R block and I don't think it tells me. What do you do with this number? (What does it tell you).
I'm still employed and put money on a 401(k), HSA, pre-tax insurance premiums... so my AGI is significant lower than my gross. Why is AGI more relevant?

Does it help in any way understand my big question: for $X in spendable cash in retirement, how much will I need pre-tax.

Since most of income today is W2 but in retirement it will be taxable, tax-deferred and a little bit of tax free, I don't think my current effective tax rate is relevant.

 

[BeWealthy]

Using the Line 24 / Line 11 methodology, for 2023: 0.9%. It's a little higher than I anticipated.

 

[USGrant1962]

I use H&R block and I don't think it tells me. What do you do with this number? (What does it tell you).
I'm still employed and put money on a 401(k), HSA, pre-tax insurance premiums... so my AGI is significant lower than my gross. Why is AGI more relevant?

Does it help in any way understand my big question: for $X in spendable cash in retirement, how much will I need pre-tax.

Since most of income today is W2 but in retirement it will be taxable, tax-deferred and a little bit of tax free, I don't think my current effective tax rate is relevant.

AGI is not more relevant - it is an intermediate number in tax calculations used for certain hurdles, tax breaks, and additional taxes. Your effective tax rate is your actual tax owed divided by total income on line 9 (to be precise, plus tax-exempt interest and any other income that does not show up on your 1040).

Anyway, back to the start of this thread the Turbo Tax method is Line 24 total tax / Line 9 total income. In H&RB on the Tax Summary page you can divide "Actual tax due" by "Income".

When still working your current effective tax rate is not particularly relevant to retirement planning, but is relevant if you vote.

 

[BlueberryPie]

That's why AGI doesn't seem to be a good measure, some of the deductions, etc... are already discounted.

If a couple makes the standard deduction plus one dollar, is their taxe rate 10% (10 cents on that dollar) or is it 10 cents divided by $27001?

 

[dheb]

I owed 0 federal tax, so I guess my effective federal rate is 0.

 

[Koolau]

I owed 0 federal tax, so I guess my effective federal rate is 0.

Very nice. Enjoy it while it lasts because YMMV.

 

[misanman]

I owed 0 federal tax, so I guess my effective federal rate is 0.

So you paid 0 and also owed 0?

 

[marinauser]

9.14% Federal effective tax rate.

 

[Tom52]

2023 Federal taxes - Line 24 / Line 9 = 4.21%
No State tax in Florida

It will get a lot uglier once we are forced to take RMDs in a couple years.

 

[mickeyd]

13.65% - so says TT but figure does not include my non-taxable VA disability compensation. All federal, but Texas does not reach into our pocket for cash.

 

[Stwicky]

I did some large-ish Roth conversions. Overall tax for 2023 was 12.29%. Still a big number.

 

[yakers]

Federal 9.11% per TT.

 

[dmpi]

12.5%. Lower than I though but I claimed some tax credits that I forgot to do last year.

 

[Gumby]

11.6% federal
2.4% state

As a general rule, I don't mind paying taxes. It means I'm making money.

That's why AGI doesn't seem to be a good measure, some of the deductions, etc... are already discounted.

If a couple makes the standard deduction plus one dollar, is their taxe rate 10% (10 cents on that dollar) or is it 10 cents divided by $27001?

Their marginal rate is 10%. Their effective rate is 0.0037%.

 

[starry night]

Sources of income

You know what would be useful in analyzing this issue?…..understanding the source of income that drives one’s taxable situation.
Our sources of income right now in retirement are limited to SS (DH and mine) and distributions from taxable investment portfolio…I,e. no pension, no RMD.
With this, the standard deduction and our qualified dividends, we owe no tax.
It would help me in understanding others’ tax rate if I knew their condition comes from taxable incomes such as employment or self-employed income, pensions, RMD or withdrawals from tax-deferreds, etc.

 

[BeWealthy]

I owe federal tax this year due to t-bill interest exceeding the standard deduction and slightly overshooting MAGI regarding my ACA subsidy.

 

[copyright1997reloaded]

You know what would be useful in analyzing this issue?…..understanding the source of income that drives one’s taxable situation.
Our sources of income right now in retirement are limited to SS (DH and mine) and distributions from taxable investment portfolio…I,e. no pension, no RMD.
With this, the standard deduction and our qualified dividends, we owe no tax.
It would help me in understanding others’ tax rate if I knew their condition comes from taxable incomes such as employment or self-employed income, pensions, RMD or withdrawals from tax-deferreds, etc.

%'s for my income sources (2022, rough estimates):
Wages 45%
Pension 29%
Dividends 11%
Interest 1%
Roth Conversions 15%
(total 101% due to rounding)

2023 will be "interesting" because the interest portion will have shot up quite a bit, perhaps making the tax burden higher. OTOH, wages will be lower because even though I was full time, I reduced my "extra" teaching load. The above took me as far as I dared into the 24% marginal bracket (Single).

 

[foxcreek9]

8.7% - Fed Tax / (Total Income + untaxed SS)
11.7% - AGI
0% - State Illinois

 

[jimbee]

7.0% Federal 2023
3.3% State (WI) 2023

16% Federal 2013 (last full year of employment)
5.6% State (WI) 2013

 

[audreyh1]

OK - finally.

Turbotax calculates it as 11.42% - that's Gross (unadjusted income)/total tax owed

But that doesn't include the tax-exempt interest income I received. When I add that to the total gross income I calculate 10.96% effective tax rate.

 

[almost there]

13.48% fed. Lg Roth Conv. killed me.
But was expected. And planned for.

 

[JoPeter57]

federal 11.xx%
state - none

 

[FlyFisher]

Federal 8.27%
State (CA) 2.29%

 

[Al18]

Federal 6.72%
State (NJ) 1.32%