Early social security/medicare affecting tax bracket

[Hacker James]

I have not received the 1099P ? form from Social security yet, but it looks like the new increase in the medicare premium from $104.90 to $109 places me in a higher tax bracket and if it starts in December vs January, the government extracts more from us for the whole year. Even with the .3% increase in benefit, I will end up with exactly the same net, but will be receiving a smaller refund.  I also should probably look at the actual tax tables to see if this is true. In years past, I was able to file early as I knew what the Social Security benefit was for the entire year, now I will have to wait for confirmation prior to filing so as not to have a delay in receiving the refund.

[No Mulligans]

That's not true.  Your entire income doesn't get taxed at the higher rate.  Only the incremental amount is taxed at the higher rate.

 

[Hacker James]

2 minutes ago, No Mulligans said:

That's not true.  Your entire income doesn't get taxed at the higher rate.  Only the incremental amount is taxed at the higher rate.

 

I dunno. I only know that I had it calculated with the old numbers and then when I inserted with what I think the numbers will be, the refund is $8.00 less. This seems disproportionment with an increase of only around $3.40 in Social Security and similar with military retirement. It should not be a dollar for dollar increase which would be the same as a 100% tax on the difference. The only reason I can think of is I am on the cusp of a tax bracket and the $8.00 or so puts me over. Anyway, moot point. I will just wait for the piece of paper and file the darned thing.

[Hacker James]

well,I don't know what happened, but it looks to have been fixed. The refund amount is exactly the same. I use a tax preparation cite called FREETAXUSA, and have used it for years with no problem. Maybe just a temporary glich, but it self corrected. I will still wait though, even though the net  numbers are the same, they may be allocated differently and could delay the refund.

[Hacker James]

Has anyone received their SSA 1099 yet?  The site says they are being mailed. IIRC, past years I did not receive it before Feb 1.  

[jkelley9]

I think you have a misunderstanding of tax brackets. Like @No Mulligans said, you are only taxed at the incremental level of the "spillover" into that taxable income bracket.

For example (I'll lay this out in easier numbers because I don't want to find the real ones right now):

Bracket 1: $10,000 @ 10% tax

Bracket 2: $20,000 @ 20% tax

Bracket 3: $30,000 @ 30% tax

Say your 'taxable' income is $25,000;

$10,000 of your income would be @ 10% taxed, the next $10,000 would be @ 20% taxed, and the remaining $5000 would be taxed at the 3rd bracket @ 30%

So: 10,000 x 0.1 + 10,000 x 0.2 + 5,000 x 0.3 = $1,000 + $2,000 + $1,500 = $4,500

Moving into different tax bracket is typically only a problem for some people because at certain income THRESHOLDS (not the same thresholds as the "tax brackets," usually) you may lump over into an area where you do not qualify for certain deductions or credits.

For example, say your adjusted gross income (taxable income) was $101,000. Say you had PMI on your home mortgage loan. Last year the threshold for being able to deduct PMI interest was "an adjusted gross income of $100,000 or less." Therefor, at $101k you were over that threshold and they gave you the middle finger. So you may have netted less in return (an higher "effective" tax rate).

Taxes are s***ty.

Edited January 19, 2017 by jkelley9

[Hacker James]

@jkelley9 yes, you are correct. I had a misconception.  In any event, my tax is the same regardless of the small increase owing from the COLA. Now if I could only actually "receive" the SSA 1099  so that I can file.