I am running a hypothetical example to see if I understand how the taxation on qualified dividends work. I am using MFJ. Qualified dividends are $120,000. Interest income is $10,000. No other income. I am using the 2024 tax rates, taking the standard deduction.
I am filling out the Qualified Dividends and Capital Gains Worksheet for Line 16 in form 1040. I get to Line 18 and I get the 15% tax is $1,012.50. Then following the Worksheet, the 20% tax is $2,000. So, the total tax is $3,012.50. However, putting this information into the tax calculator at the AARP website shows the total tax as $1,012.50. It doesn’t seem to require the 20% tax rate amount. Could you please explain if the AARP calculation is correct and if so, why is my Worksheet showing a 20% tax amount and AARP is not?
I’m not sure why you have a 20% amount on your worksheet. I would suggest checking to be sure that you are subtracting all of the lines correctly. 2024 20% LTCG/qualified dividend rates don’t start until taxable income (after deductions) of $583,751. (Note - If you are using the 2023 capital gains worksheet, it would be $553,851). Since your total income before your standard deduction only $130k ($100,800 after a $29,200 standard deduction) you should be nowhere near having an amount taxed at 20% on your capital gains worksheet.
Thank you for responding, AJ. I found out that I had Line 5 reversed. Correcting it so that it’s Line 1 minus Line 4 makes the 20% Tax amount disappear.
Yes, the capital gains worksheet can be very confusing to do manually because of all the different lines being subtracted from each other. Get one set backwards and you have very different results, as you found. Glad you were able to find your mistake.
Correct for MFJ (it’s $200k for Single) but that’s not part of the capital gains worksheet, and @Ken288’s income is still well below that limit, which is why I didn’t mention NIIT.
With NIIT, there are basically 4 different tax rates for LTCG:
0%
15%
18.8%
23.8%