Question:
n reviewing your demo software, you ask for my marginal fed tax rate, and then declare it my effective tax rate. For 2014, my marginal tax rate was 20% but my effective tax rate was only 1.2%. I am not sure you are asking enough to calculate the effective tax rate, therefore all your calculations could be off by quite a bit. I have never seen marginal tax rate equal to effective tax rate.
Answer:
You are right. We don’t ask enough to get your true effective tax rate. If you enter federal marginal and state we simply calculate that you don’t pay federal taxes on your state taxes. The best way to enter it is to pull out your tax returns, and divide your total taxes paid by gross income, then enter that percentage DIRECTLY into the effective tax rate box.
So if that is 1.2% then enter that as your effective tax rate. The federal marginal and state are then just used in the printout and not in the calculations.