What sorts of taxes are analyzed in Income Lab?

As with everything on the Income Lab platform, we seek maximum accuracy and realism in our tax calculations and analysis. That means that all Federal and state income taxes are calculated as they currently apply. Income Lab uses the most recent set of complete tax documents to guide our calculations. This usually means taxes are calculated according to the rates and rules that applied in the last completed tax year. For example, if you are using the platform in 2020, taxes would be calculated as in 2019. Although some tax changes have been announced since the end of 2019, there is often insufficient specific information available regarding how those changes will be implemented to allow us to include them in our analysis.

For analysis of future years in a plan, we assume adjustments to tax rules for inflation, except where such inflation adjustments do not apply.

Tax Treatments

Federal

• FICA Tax: Social Security and Medicare taxation on earned income. Treatment differs slightly between wage income and self-employment income, so be sure to properly specify your income type!
• Taxability of Social Security Income: Social Security Income (SSI) is never completely subject to taxation. At most, 85% of this income is included in AGI. In some cases, no SSI is taxable. Taxable SSI is subject to ordinary income tax.
• Ordinary Income Tax: These rates apply to all sorts of income, like wages, interest, taxable Social Security, rental income, withdrawals from tax-deferred retirement accounts, etc.
• Long-Term Capital Gains Tax: Taxes on gains realized on investments held for more than one year, or on qualified dividends.
• Net Investment Income Tax (NII Tax): An additional tax on investment income if total income is above a threshold. This threshold is not subject to inflation adjustments. This tax was introduced in the Affordable Care Act (aka "Obamacare").
• Additional Medicare Tax: An additional 0.9% tax on wages that exceed a threshold. This threshold is not subject to inflation adjustments. This tax was introduced in the Affordable Care Act (aka "Obamacare").

State Income Tax

We include tax treatment for all 50 US states and the District of Columbia. State tax regimes can be quite complex, including various exclusions, deductions, exemptions and credits that can affect retirees in particular. The Income Lab system covers all such details as closely as possible.