Why would I want to do this?Enter my own effective tax rate
Money offers an effective income tax rate (Money uses an effective income tax rate to calculate the tax impact of different events in your financial plan, such as estimating your future income. The effective income tax rate is calculated by adding federal, state, and local taxes together, and dividing the sum by the amount of your gross income.) for you based on the state in which you live. If you know, perhaps by looking at your recent tax return, that you are paying significantly higher or lower than the average for your state, you might want to enter a different effective income tax rate.
1 Go to Taxes & Inflation.
2 Click the box that says, ôAdjust the effective tax rate myself.ö
You can type a number or move the slider to choose the rate you want.
I know my income tax rate (from my federal taxes), but Money shows a much lower rate. Why?
While you may be in a 28% or 36% (or other) tax bracket according to your federal tax forms, this number is somewhat misleading. In fact, your income is taxed incrementally: the first $40,000 or so (joint income) is taxed at a low rate (probably around 15%), the next $40,000 or so you earn is taxed at a higher rate, and the next amount at a still higher rate. The tax bracket you're in reflects the highest rate at which any of your income is taxed. Using the effective income tax rate (Money uses an effective income tax rate to calculate the tax impact of different events in your financial plan, such as estimating your future income. The effective income tax rate is calculated by adding federal, state, and local taxes together, and dividing the sum by the amount of your gross income.) is a more accurate way of assessing what percentage of your income actually goes to taxes.
Is it true that there is no such thing as an "exact tax rate"?
Yes, the concept of an exact rate is misleading because tax laws are constantly changing. Financial Planners generally use this demographic average approach to estimate a person's tax rate. Money uses the same method for the effective tax rate it suggests for you.
When I enter my own effective tax rate, what else does it affect in Money?
When you adjust the slider to customize your effective tax rate, Money uses this adjustment for all tax-related activities throughout your financial plan. Money also applies this adjustment to forecasted tax rates for future years.
No, Money will apply the difference between the rate you enter and the rate it calculated to each future year. For example, if Money calculates a rate of 10% and you type 12%, Money will calculate a rate for each future year in your plan and will add 2% (the difference between 10% and 12%) to each year's calculated rate.