Help with My Tax Rates

[RASAP]

I am using TurboTax 2019 to do a little what-if look ahead for 2020 and I am seeing something odd that I hope someone can help me understand.

I have entered into TurboTax all of my 2020 estimates for interest, dividends, and Social Security. No capital gains as I will be withdrawing from my tIRA (all pre-tax) to cover my remaining annual expenses.

Starting at a 38k tIRA withdrawal and then incrementing it by $1000 I get the following table (no other TurboTax data changed):

tIRA Withdrawal ($)………Tax Due ($)……….Tax rate (%)
38k 5972
39k 6183 21.1
40k 6422 23.9
41k 6881 45.9
42k 7344 46.3
43k 7806 46.2
44k 8271 46.5
45k 8736 46.5
46k 9202 46.6
47k 9669 46.7
48k 10097 42.8
49k 10351 25.4
50k 10554 20.3

Less than 39k and greater than 50k has a tax rate around 21%.

So, why does my tax rate more than double between 41k and 48k but remain around 21% above and below this 8k span?

 

[RunningBum]

It's probably some combination of pushing more of your SS into being taxable, and more qualified dividends into being taxed. For the QDivs, you can look at the Qualified Dividends and Capital Gains worksheet to see what is happening there. I don't know which form calculates how much of SS is being taxed.

So basically you are being taxed on the additional withdrawal, and also pushing perhaps the same amount of SS into being taxed. This is the SS tax hump or torpedo.

 

[N02L84ER]

An extra $1000 from the tIRA makes another $500 to $850 of the Social Security taxable until 85% of the SS is taxed.
The dividends may or may not be pushed out of the 0% tax bracket and into the 15% or 20% brackets.
HTH

 

[pb4uski]

Just off the cuff it looks like that extra $1k is causing an additional $350 of SS to be taxed (85% rather than 50%) and another $1k of qualified income to be pushed from 0% to 15%.

22% * 135% + (15% - 0%) = 44.7%

How much does the taxable SS change along those data points?

 

[RASAP]

OK, I checked into the change in the amount of my Social Security that is taxed and that does not appear to be the cause of the sudden increase but does appear to be the cause of the sudden decrease. I added a column showing the increase in taxable income for each step. For the lower numbers, the increase is $1000 of additional tIRA withdrawal plus $850 of additional Social Security being taxed. I hit the max SS tax (85%) at around 48k. It must be something with the qualified dividends. Will check further.

tIRA Withdrawal ($)………Tax Due ($)……….Tax rate (%)……….Delta Taxable Income
38k 5972
39k 6183 21.1 1850
40k 6422 23.9 1850
41k 6881 45.9 1850
42k 7344 46.3 1850
43k 7806 46.2 1850
44k 8271 46.5 1850
45k 8736 46.5 1850
46k 9202 46.6 1850
47k 9669 46.7 1850
48k 10097 42.8 1688
49k 10351 25.4 1000
50k 10554 20.3 1000

 

[RASAP]

Found it! You all were exactly right. From 40k through 49k of tIRA withdrawals, my Qualified Dividends are being taxed at 15% and my taxable SS is rising to 85%. At 50k, all of my QDs have been taxed and my taxable SS has maxed out.

Thanks to you all for pointing me in the right direction.