Help - Investment Tax Rate Estimator : Personal Fund

Entry Form

Specify the following about your situation, and you will be presented with a table of applicable combined (federal +state) marginal tax rates on investment income, for both ordinary income (e.g. bond interest) and long-term capital gains.

Home State

If you don’t claim any state as your domicile (some ex-pats, for example), select the “(No State Tax)” option.

Filing Status

At this time, we present rates for the most commonly claimed statuses, “Married Filing Jointly” and “Single”. Rates for the other federal statuses, “Married Filing Separately” and “Head of Household” are similar to, but not identical, to the “Single” rates.

Additional Dependents

In some states your taxable income may be reduced by taking exemptions for dependents. If this applies to your home state, then you will be able to specify the number of dependents that you have. (If you selected a state that doesn’t consider dependents in income tax calculations, this option will not be shown). Do not include yourself or your spouse in the number of dependents.

Tax Rate Table

The columns in the tax table are:

Gross Income Range

This represents the sum of household income from all sources, including wages and investments, before any deductions. It corresponds to “Adjusted Gross Income”, as on IRS Form 1040 line 11. Look for the range that you believe most closely approximates your household income. We start with this number, and then estimate taxable income by subtracting the standard deductions for federal and state respectively. For states that provide for personal exemptions, we also deduct the exemptions based on your filing status and number of additional dependents. Consequently, you might notice that the ranges in our table are different from the ranges in some other tax tables that you’ll find. That’s because most tables show ranges and rates for taxable income net of deductions. Our ranges are adjusted from the standard tables to represent gross income before deductions.

About 90% of taxpayers take the standard deduction in recent years. So our approach most likely applies to you. If you itemize deductions instead of taking the standard deduction and/or make a significant number of charitable contributions, reduce your gross income by the difference between your total deductions and the standard deduction (as on your Form 1040 lines 12 and 13). But for the purposes of using this table, don’t worry about trying to figure out your exact income. The table is intended only to provide a reasonable ballpark estimate of the taxes on your investments based on readily available current information, and for the purpose of making qualitative comparisons among mutual funds and ETFs.

Ordinary Income Rate

This is the marginal combined tax rate on “ordinary” investment income when your total income is in the corresponding range. That is to say it is the tax rate per each $1 of additional investment income. It is not the tax rate on all of your investment income. It is a combined rate in the sense that it is the sum of federal income tax and state income tax, where the latter applies only in states that tax investment income. The tax on “ordinary income” applies to: bond interest, short-term capital gains, and “non-qualified” stock dividends, including dividends from REITs; and consequently to distributions from mutual funds and ETFs to you that originate from those categories of income.

Long-Term Capital Gain Rate

This is the marginal combined tax rate on certain investment income when your total income is in the corresponding range. “Marginal” and “Combined” have the same meanings here as they do in the definition of “Ordinary Income Rate”. This lower rate applies to forms of investment income that are given a break relative to “ordinary” income, specifically long-term capital gains, and “qualified” dividends. The latter category includes dividends from most stocks and stock funds, and consequently to distributions from funds corresponding to those earnings.

Using the Information in the Tax Table

The aim of this tax table is to help you estimate the tax rates you will pay on future investment income so you can compare among mutual funds and ETFs for anticipated after-tax performance. Even if, as the old saying goes, taxes are the only certain thing other than death, the precise amount of taxes you will pay in the future is far from certain. Tax laws and rates change from year to year. Your earnings and personal circumstances are also subject to change. Given all the uncertainty, the best we can hope to do is to roughly estimate our own tax burden along the current spectrum of state and federal taxes — which is between 0% to 54.1% on ordinary income, and between 0% to 37.1% on long-term capital gains (and knowing too that the endpoints of those ranges will probably also change)

So, look for the income range(s) on the table that correspond to what you reasonably expect your range of income to be in the years ahead, and average the tax rates in those rows. Adjust per your own expectations of the future.

Disclosures and Caveats

The information in the tax tables is based on sources that we believe to be reliable. We do not guarantee the accuracy of the informaiton.
The calculations are based on the newest federal tax rates (applicable to income earned in 2022). The state tax rates we use are for income earned in 2021 (the latest information that is complete and easily accessible).
Some states’ rates are expressed to two or three decimal places. For example, Illinois’ rate on all income is 4.95%. Ohio’s top rate is 4.797%. We present combined rates rounded to a single digit to the right of the decimal place.
The information is to be used only as a starting point for your own research, and should not be relied on as tax advice. Always consult with a tax advisor before making investment decisions based on tax considerations and/or verify your tax situation from publications of the IRS and your home state tax authorities.

Sources

Tax Foundation, “2022 Tax Brackets“, taxfoundation.org/2022-tax-brackets/

Tax Foundation, “State Individual Income Tax Rates and Brackets for 2021“, taxfoundation.org/publications/state-individual-income-tax-rates-and-brackets/

Motley Fool, “2021 Capital Gains Tax Rates: Everything You Need to Know“, www.fool.com/research/capital-gains-tax-rates/

Internal Revenue Service, “Questions and Answers on the Net Investment Income Tax“, www.irs.gov/newsroom/questions-and-answers-on-the-net-investment-income-tax