Within Tax Clarity reporting, the Tax Map will often show a significant increase in the Effective Marginal Rate (EMR) at certain income levels. For illustrative purposes, consider the case of a couple over 65 with a combined Social Security benefit of $65,000, net Long-Term Capital gains of $15,000 and Required Minimum Distributions (RMDs) of $46,000. In this instance, given the mix of capital gains, RMDs and Social Security benefits, the EMR shows a significant spike - the Tax Torpedo.
In numeric terms, for this example case, the map illustrates the impact. If the couple were to harvest an additional $1,000 in RMDs, the impact of the Tax Torpedo is clear.
- $1,000 additional IRA withdrawal taxed 12% bracket $120
- Causes $850 taxable social security taxed 12% bracket $102
- Causes $1,850 Capital Gains to be taxable taxed 15% bracket $277.50
- Total additional tax burden on $1,000 withdrawal $499.50
The Details tab in Tax Clarity will also show this information in a Base Case vs Scenario output:
