4 ms·

37% for federal, and another 13% in places like California, bringing it to 50% (vs 45% in Australia)

by dntrkv 5y ago

seanmcdirmid 5y ago
Do you understand how marginal tax rates work? Let's say you make $1,000,000 a year in California. Your effective tax rate is 11.78 percent because the top 12.3% rate is only applied to income you earned over $599k. (13.3% applies only on income above $1,000,000, which you are too poor to pay yet). Same with federal taxes, that $1,000,000 earner is going to pay an effective rate of 33.3%. Combined, you are paying 45% state and federal income tax.
- dntrkv 5y ago
  ...Yes I understand how they work, thank you very much. In California, the highest possible tax rate on earnings, would be 50%. In Australia that tax on the highest earnings would be 45%. Nowhere did I claim that all your income is taxed at the same rate. I was replying to the quote "federal tax caps out at 37%" which ignores the significant 13% additional tax in CA.
  - seanmcdirmid 5y ago
    You would have to be making $5,000,000 a year before you are paying 50% in California (see https://smartasset.com/taxes/california-paycheck-calculator#W0pit2R4qS https://smartasset.com/taxes/california-paycheck-calculator#...).
    - dntrkv 5y ago
      Sure, but that doesn't change the point of my comment which is that the income tax rates in some US states will actually exceed Australia's in higher earners.
      - seanmcdirmid 5y ago
        Ya, if that is your point. Australian taxes ramp up faster, so low earners will pay more tax in Australia than in California. E.g. Australia making $50K USD/year will pay 17% in taxes (according to https://www.ato.gov.au/Calculators-and-tools/Host/?anchor=STC&anchor=STC#STC/report https://www.ato.gov.au/Calculators-and-tools/Host/?anchor=ST..., don't forget to convert to AUD first), while a Californian will only pay 15%.
        ceejayoz 5y ago
        (If you ignore things like cost of healthcare and college.)
        seanmcdirmid 5y ago
        I thought healthcare was funded by a payroll tax in Australia. Are you claiming that they are funding it via income tax instead? There is also an extra tax to pay for college that graduates (4 percent) pay if they make more than $39k (AUD I think, not sure what the basis that they have to pay is, however). Both healthcare and college seem to be funded separately from income taxes.
        ceejayoz 5y ago
        I'm responding to "low earners will pay more tax in Australia than in California".
        seanmcdirmid 5y ago
        We were talking about income tax (apples), and you begin to talk about payroll taxes and something funded via an extra tax on college graduates (oranges). It might be that overall the poor get a better deal in Australia. But surely it's not because of the income taxes (slightly higher than CA for low earners) or the consumption taxes (much much higher than CA). Maybe they get a better deal on health insurance and payroll taxes, plus the idea of paying for college via successful graduates is one that America should definitely consider adopting.
- the-rc 5y ago
  With the exception of NY State, where there's a recapture at $1.1M that makes rates no longer marginal...
  - acchow 5y ago
    Could you explain the recapture please?
    - the-rc 5y ago
      For 2020, the top bracket starts at $1,077,550. Then, gradually through the first $50K into the bracket, it becomes a full 8.82% tax on every single dollar of income, other brackets included. For 2021, that rate has been bumped up to 9.65% and two new ones — 10.30 and 10.90% — have been added. I think the cut off amounts at which this flat rate system phases in are still the same. But the craziness with the most recent changes doesn't end there. From July 2021, employers are required to withhold from bonuses and overtime at the new supplemental rate of 13.78%, which is quite a bit higher than even the top bracket. That guarantees even more and larger refunds for taxpayers next year. Or, if you look at it another way, a bigger interest-free loan to the state.
  - seanmcdirmid 5y ago
    Recapture only applies to tax credits, and is itself gradually phased in. It also doesn't seem to be based on income, but rather not adhering to the terms of the tax credit over the long term: https://www.tax.ny.gov/bus/ct/Recapture-of-tax-credits.htm https://www.tax.ny.gov/bus/ct/Recapture-of-tax-credits.htm
    - the-rc 5y ago
      The state doesn't call it as such and it doesn't really mention much about it anywhere, other than implicitly in worksheet 7 on page 59 of the 2020 IT-201 form. It's still a recapture, though, and it does apply to income. It's separate from tax credits. Try the worksheet. By the way, most online tax calculators seem not to know about it, either. See e.g. https://www.bogleheads.org/forum/viewtopic.php?t=247046 https://www.bogleheads.org/forum/viewtopic.php?t=247046 where someone points out that CT does the same and calls it recapture.

37% for federal, and another 13% in places like California, bringing it to 50% (vs 45% in Australia)

by dntrkv 5y ago

37% for federal, and another 13% in places like California, bringing it to 50% (vs 45% in Australia)

Do you understand how marginal tax rates work? Let's say you make $1,000,000 a year in California. Your effective tax rate is 11.78 percent because the top 12.3% rate is only applied to income you earned over $599k. (13.3% applies only on income above $1,000,000, which you are too poor to pay yet). Same with federal taxes, that $1,000,000 earner is going to pay an effective rate of 33.3%. Combined, you are paying 45% state and federal income tax.

dntrkv 5y ago
...Yes I understand how they work, thank you very much. In California, the highest possible tax rate on earnings, would be 50%. In Australia that tax on the highest earnings would be 45%. Nowhere did I claim that all your income is taxed at the same rate. I was replying to the quote "federal tax caps out at 37%" which ignores the significant 13% additional tax in CA.
- seanmcdirmid 5y ago
  You would have to be making $5,000,000 a year before you are paying 50% in California (see https://smartasset.com/taxes/california-paycheck-calculator#W0pit2R4qS https://smartasset.com/taxes/california-paycheck-calculator#...).
  - dntrkv 5y ago
    Sure, but that doesn't change the point of my comment which is that the income tax rates in some US states will actually exceed Australia's in higher earners.
    - seanmcdirmid 5y ago
      Ya, if that is your point. Australian taxes ramp up faster, so low earners will pay more tax in Australia than in California. E.g. Australia making $50K USD/year will pay 17% in taxes (according to https://www.ato.gov.au/Calculators-and-tools/Host/?anchor=STC&anchor=STC#STC/report https://www.ato.gov.au/Calculators-and-tools/Host/?anchor=ST..., don't forget to convert to AUD first), while a Californian will only pay 15%.
      - ceejayoz 5y ago
        (If you ignore things like cost of healthcare and college.)
        seanmcdirmid 5y ago
        I thought healthcare was funded by a payroll tax in Australia. Are you claiming that they are funding it via income tax instead? There is also an extra tax to pay for college that graduates (4 percent) pay if they make more than $39k (AUD I think, not sure what the basis that they have to pay is, however). Both healthcare and college seem to be funded separately from income taxes.
        ceejayoz 5y ago
        I'm responding to "low earners will pay more tax in Australia than in California".
        seanmcdirmid 5y ago
        We were talking about income tax (apples), and you begin to talk about payroll taxes and something funded via an extra tax on college graduates (oranges). It might be that overall the poor get a better deal in Australia. But surely it's not because of the income taxes (slightly higher than CA for low earners) or the consumption taxes (much much higher than CA). Maybe they get a better deal on health insurance and payroll taxes, plus the idea of paying for college via successful graduates is one that America should definitely consider adopting.
the-rc 5y ago
With the exception of NY State, where there's a recapture at $1.1M that makes rates no longer marginal...
- acchow 5y ago
  Could you explain the recapture please?
  - the-rc 5y ago
    For 2020, the top bracket starts at $1,077,550. Then, gradually through the first $50K into the bracket, it becomes a full 8.82% tax on every single dollar of income, other brackets included. For 2021, that rate has been bumped up to 9.65% and two new ones — 10.30 and 10.90% — have been added. I think the cut off amounts at which this flat rate system phases in are still the same. But the craziness with the most recent changes doesn't end there. From July 2021, employers are required to withhold from bonuses and overtime at the new supplemental rate of 13.78%, which is quite a bit higher than even the top bracket. That guarantees even more and larger refunds for taxpayers next year. Or, if you look at it another way, a bigger interest-free loan to the state.
- seanmcdirmid 5y ago
  Recapture only applies to tax credits, and is itself gradually phased in. It also doesn't seem to be based on income, but rather not adhering to the terms of the tax credit over the long term: https://www.tax.ny.gov/bus/ct/Recapture-of-tax-credits.htm https://www.tax.ny.gov/bus/ct/Recapture-of-tax-credits.htm
  - the-rc 5y ago
    The state doesn't call it as such and it doesn't really mention much about it anywhere, other than implicitly in worksheet 7 on page 59 of the 2020 IT-201 form. It's still a recapture, though, and it does apply to income. It's separate from tax credits. Try the worksheet. By the way, most online tax calculators seem not to know about it, either. See e.g. https://www.bogleheads.org/forum/viewtopic.php?t=247046 https://www.bogleheads.org/forum/viewtopic.php?t=247046 where someone points out that CT does the same and calls it recapture.