(above).Learn how Money calculates my tax rate
Tip: For easier reading, click (above).
Money calculates your tax rate using 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 each state in the country. The state you live in and the income you make determine your effective income tax rate.
Money also calculates your tax rate for each year in your lifetime plan. For each year, Money looks up and applies the correct effective income tax rate based on your income for that year. So, when major life events cause your income to change (retirement, a big promotion, and so on), Money's calculated tax rate will reflect the new income for that year.
For this year, Money will apply the effective income tax rate to the amount shown in the Annual Income field.
You can enter special income, such as an inheritance or the sale of a house or business, using the New Income wizard. Money uses the tax rate that you specify in that wizard for any new income sources you enter there.
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.
Can I specify different tax rates for different income levels over time?
You don't need to because Money does it for you. When your income changes, for example, when you get a big promotion, take maternity leave, or retire, Money automatically recalculates the tax rate to reflect the adjustment of your income.
If I adjust my income later, does Money adjust my tax rate?
Yes, it's done automatically.
Can I exempt part of certain income (such as a gift or inheritance) from taxes?
If you have income other than investment or salary income, you can enter it using the New Income wizard. The wizard lets you specify the tax rate for such special income. If you want the income to be tax exempt, specify ô0%ö as the tax rate. For more information, see Enter other income (not from my career).
How do I enter special income, such as an inheritance or the sale of a house?
You can do this by using the New Income wizard. Use this wizard to calculate taxes for other than salary or investment income. For more information, see Enter other income (not from my career).