Personal Finance (Not Investing) • What was your effective tax rate in 2023?

~ 40% of my income is in sheltered accounts. I haven't filed my tax return so my tax number isn't final. But normally, all-in I'd expect it in he low-mid single digits.

I had never seen income generated within deferred accounts included in any computation of either effective or actual tax rates. And I have also never seen Roth income included. I always thought it was just AGI, but now that I think about that, AGI would not include the untaxed portion of Social Security income. Interesting. Maybe now, I don't feel so bad paying a bit over 29k in taxes. Our AGI (line 11) was about 207k. But that doesn't include 4100 in untaxed SS, 2400 bond income, 35k tIRA income and 42k Roth Income. I never included untaxed income in any computation before. Who knew? LOL

The problem with AGI is that it cherry picks what is income and what isn't. Effective tax rate is a mostly useless data point. A more useful one is marginal tax rate, State and Federal combined (which may or may not be the statutory rate).

Using Line 24 is equally as useless inasmuch as it ignores refundable credits which can be important for many taxpayers.

This!

Line 24 for us is zero, after a tiny bit of nonrefundable credits (after reaching zero, the rest of those credits are ignored). But we have another nearly $5k in refundable credits on line 32, no withholding.

line 24 / AGI = 0
line 24 / Taxable income= 0
line 32 / AGI = -17.8%
line 32 / Taxable income = -1212%

ETA: following Ron Ronnerson's lead
line 32 / gross income = -8.2%

Very nice! Speaking of tax credits, my employer (a public school district) doesn't contribute toward health benefits so we get them on the government exchange. By making use of tax-deferred accounts, our AGI is such that we qualify for the premium tax credit toward health insurance. In 2023, our annual premium tax credit was about $15,500 and it's $17,500 this year. In both years, our share of health insurance premiums for the whole family have been $0. We have received over $100k in premium tax credits over the past 6 years, since my wife became a stay-at-home parent. I didn't mention this part when I posted earlier but these tax credits definitely make a difference for our family's finances.

Also, for fuller context, our California income tax liability in 2023 was $700. As a percent of gross income (including employer contributions), our effective state income tax rate was 0.4%. In 2022, our California income tax liability was a -$750 due to the Middle Class Tax Refund. In 2021, our California income tax liability was -$1050 due to the Golden State Stimulus. In 2020, our state income liability was $100. Situations like mine are common for plenty of people in this state.

Anyhow, I'm personally a big advocate of understanding how taxes work so informative decisions can be made. While I do find more utility in marginal tax rates, I think the OP is doing well to look further into this topic.

Statistics: Posted by Ron Ronnerson — Fri Apr 19, 2024 4:34 pm — Replies 40 — Views 1712

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