(above).Troubleshoot Taxes & Inflation problems (in the Planner)
Tip: For easier reading, click (above).
The Tax Estimator calculates your federal tax rate. 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.) used in the Taxes & Inflation place includes federal, state, and local taxes.
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.
Why canÆt I set a tax rate for after my future retirement date?
You donÆt need to ù Money does it for you automatically. For each year in the future, Money calculates a separate 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.). Then, it applies the appropriate effective income tax rate to your projected income for that year. This value is automatically included in your long-term forecast.
