Updated Tax Calculator

I updated my calculator to 2016 values. You can download it here: 2016 federal tax calculator – Beta

Features built into spreadsheet:

  • Married Filing Jointly or Single Filers (No head of household yet)
  • Standard vs Itemized deduction (mortgage interest, charitable contributions, etc)
  • CTC
  • ACTC
  • EITC
  • AMT
  • Student loan interest deduction

Known limitations of spreadsheet (all of which I’ll update in the future):

  • Doesn’t include saver’s credit
  • I haven’t touched capital gains / dividends yet
  • AMT does not perfectly jive with TaxCaster above $250k or so in income. I’ll eventually figure this out.

Here is the validation of my spreadsheet against Taxcaster for a bunch of scenarios. For simplicity, I assume all kids are under 16.

Taxable Wages = $25,000
Taxable Wages = $75,000
Taxable Wages = $125,000
Taxable Wages = $175,000
Taxable Wages = $225,000

* subtracts Taxcaster’s estimated tax payments to arrive at federal tax liability with $0 withholdings.

This site is for entertainment purposes only, as disclosed here: https://www.frugalprofessor.com/disclaimers/

12 thoughts on “Updated Tax Calculator

  1. It’s nearly impossible to do with any precision, but the calculator should reflect the so-called ObamaCare cliff at 400% of poverty line.

    For people who pay their own ObamaCare premiums, especially older people, the consequences of the ObamaCare cliff are enormous. In my own case, the marginal tax rate at 400% of poverty line is about 800,000%.

    No exaggeration.

    Even weirder is the way the IRS treats ObamaCare premiums paid by self-employed taxpayers. You can’t determine the adjustment to AGI (the 161(I) deduction) until you know the amount of the ObamaCare credit (the Section 36B credit). However, the ObamaCare credit is based upon AGI, which cannot be determined until you know what the eligible ObamaCare credit is.

    This could be solved precisely using a iterative method. However, IRS Revenue Procedure 2014-41 only allows for two iterations, and if that doesn’t obtain convergence then you get a smaller amount for the credit (and higher taxes) than you would obtain with iterative convergence. As a result, it is possible to have a negative marginal rates of over 20,000%.

    I discovered this little ObamaCare land mine when I did a proforma on my 2016 return with TurboTax. I have done this routinely to determine my true marginal income tax rate on various types of income. Lo and behold, when I added $100 of self-employment income, my tax liability decreased by $260! It turns out that was the “sweet spot” where the method converged in two iterations and got the largest possible credit. One dollar less income, and the credit was lower.

    But the worst case under ObamaCare is for people who make less than 100% of poverty line in states that did not expand Medicaid eligibility. Many of these poor folks don’t qualify for Medicaid and they don’t qualify for ObamaCare subsidies. In that case, the marginal dollar that crosses the threshold of 100% of poverty line has a marginal benefit (i.e., a negative marginal income tax rate) of hundreds of thousands of percent. Make 101% of poverty line and you get virtually free insurance; make 99% of poverty line and get nothing.

  2. Love the site, New to all this and trying to figure it out, Basically I have 5 kids and my wife is in school to be a nurse right now. Im making 28 an hour at my new job I started in December last year I was right below the max for the EITC I made around 52k so we got a nice refund around 7k. This year I got a slight raise taking me 20 around 56k a year which I believe is around 3k over the limit.

    Im looking for a sweet spot where im just under the max you can make and still get the EITC I understand I could get even more back if I stashed more money aside but taking care of the family gets difficult if I save to much so simple question If I put 3-4k a year in the hospital I work for 401k then that lowers my taxable income allowing me to still qualify for the EITC correct?

    • Gary,

      Welcome to the site. I’m glad you found it. Everything you need to find out about the EITC is here: https://www.frugalprofessor.com/etic-guest-post-on-gocurrycracker/

      If you want the simple version, skip to the “Cliff Notes Version of EITC Hacking” section. With 5 kids, the optimal taxable income you want in a given year is $36,300. You can reduce your gross income by 401k contributions to get you to that point. For every dollar in income above that point, it will cost you $0.31 in extra taxes (or more precisely, $0.31 less in free money from gov’t). I understand it takes money to live, but if you can get your taxable income down to $36,300, your refund will be $8,619. If it requires your more to live, no big deal.

      One thing’s for sure, though. Claim “exempt” on your W4 so that you aren’t unnecessarily withholding taxes through the year. It is clear that you will owe none.

      Download and use this tool for a more detailed understanding of your situation: https://www.frugalprofessor.com/updated-tax-calculator/.

      To be clear, you lose ETIC a few pennies at a time. There isn’t a threat of 100% loss of losing the EITC. It’s just a matter of optimizing your 401k contributions to maximize your potential benefit, provided you can afford to do so from a cash flow standpoint.

  3. Appreciate it sounds good, The optimal sounds great but I would be ok with what be getting the last few years. We been getting our state back as well so its been around 8k total so I think its a no brainer for me to atleast keep myself under the max for ETIC. I don’t claim exempt however with all the dependents listed I pay nothing in federal would it still benefit to make it exempt?

    • If you already have $0 withheld on your paychecks, then claiming “exempt” won’t help you any more.

      As far as what I would do if I were you, I would probably be as frugal as possible to try to max out the EITC. If it takes you more than $36,300 to live, then oh well. If, come November or December you realize that you can afford a massive 401k contribution to hack the EITC, go for it at that point. You can contribute 100% of your pacheck in those months, so long as you don’t exceed $18k total. Then, come Jan 2018, file your taxes early and get your $8.6k check from the gov’t in February.

  4. Love the site and your Excel Tools are great. Keep it up!

    Does this spreadsheet account for partial deductions of traditional IRA’s? We are MFJ with a gross income of ~$150k, maxing out two 401k’s ($36k) and an HSA ($6.75k). So, with all deductions, our MAGI will be around $107k which is in the middle of the partial deductions range for traditional IRA’s ($98k to $118k for MFJ). This is a new calculation for me and I’m just trying to figure out the best way to optimize Traditional vs. Roth contributions. Are there any further deductions I’m missing besides the 401k’s and HSA that could get us below $98k MAGI?

  5. It took me awhile to get back to this, but thanks for the thoughtful comment and links. I see what you’re saying, but wouldn’t a better comparison be a full Roth vs. contributing the deductible portion to a Trad and the remainder to a Roth? I ran the numbers for my expected case: 25% tax bracket now and 15% later, half is deductible.

    All Roth:
    FV = (11000-(11000*0.25))*((1+0.05)^30) = $35,656

    Splitting them up to contribute $5,500 to Roth and $5,500 to deductible Trad IRA:
    FV Roth = (5500-(5500*0.25))*((1+0.05)^30) = $17,828
    FV Trad = (5500*((1+0.05)^30))-(5500*((1+0.05)^30))*0.15 = $20,205
    Total FV = $38,033

    I’ve learned that one complication is that each IRA is treated separately when MFJ. I’d originally planned to have his be all Trad and hers be all Roth. Instead, we’d each need to split between Roth and Trad. This will require some recharacterizing, once we have our MAGI at the end of the year. Kind of a pain, but probably worth it for ~$2,400.

    IRA deduction worksheet: https://apps.irs.gov/app/vita/content/globalmedia/ira_deduction_worksheet_1040i.pdf

    • Ken, thanks for following up. Your math and logic appear sound to me. Great job using math to logically think through the tax code.

Leave a Comment