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Tax - OR - Alternate Tax

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Line: 
39
Step: 
Step 9
Step Subject: 
Tax, Credits & Checkoff Contributions
Year: 
2016

Why use the alternate tax calculation?

You may owe less tax by completing the worksheet below to compute your tax liability. Enter this alternate tax on line 39 if it is less than the tax from the tax table.

Who CAN use the alternate tax calculation?


Taxpayers using filing statuses 2, 3, 4, 5, or 6 without net operating loss:

If the combination of net income(s) from line 26 PLUS any pension exclusion taken on line 21 of the IA 1040, any reportable Social Security from step 4 of the IA 1040, and any lump-sum distribution income subject to tax on federal form 4972 exceeds $13,500 ($32,000 if either spouse is 65 or older on 12/31/16)

Married taxpayers using filing statuses 2, 3, or 4 with net operating loss when:

If one spouse has a net operating loss and chooses not to carry it back or forward. A statement that the taxpayer will not carry forward or carry back the net operating loss must be included with the return.

Who CANNOT use the alternate tax calculation?

  • Taxpayers using filing status 1
  • Taxpayers who file status 4 and do not provide the other spouse's income in Step 2 of the IA 1040
  • Married taxpayers using filing statuses 2, 3, or 4 with net operating loss when one spouse has a net operating loss and chooses to carry it back or forward

Tax Calculation Procedure

First, determine tax from:

  • tax tables, or
  • formula at the end of the tax tables, or

If the taxable income on line 38 (column A or column B) is:

Second, compute alternate tax, which may reduce tax liability.

Compare the tax calculated using one of the methods shown above to the alternate tax calculated below. Enter the smaller amount on line 39.

Alternate Tax Worksheet

1. Enter the total of:

(a) Net income from line 26, IA 1040                               

(b) Pension exclusion from line 21, IA 1040                              

(c) Reportable Social Security benefits from line 11 of the Social Security Worksheet     

(d) lump-sum distribution income subject to tax on federal form 4972

Filing statuses 3 or 4 enter combined total of both spouses

1.

   

2. Enter $13,500 ($32,000 if you or your spouse is 65 or older on 12/31/16).

2.

   

3. Income subject to alternate tax. Subtract line 2 from line 1.

3.

   

4. Multiply line 3 by 8.98%. (.0898)

4.

   

5. Using the tax tables, determine the tax on the taxable income from line 38 of the IA 1040 and enter here. Status 3 and 4 filers look up the tax separately, combine and enter total here.

5.

   

6. Compare the amounts on line 4 and line 5. Enter the smaller amount here and on line 39, IA 1040.

6.

   


Example 1

You: $8,000 net income from line 26 of the IA 1040
Spouse: $6,000 net income from line 26 of the IA 1040
They are using Filing Status 3.

1. Enter the total of:

(a) Net income from line 26, IA 1040                               

(b) Pension exclusion from line 21, IA 1040                              

(c) Reportable Social Security benefits from line 11 of the Social Security Worksheet     

(d) lump-sum distribution income subject to tax on federal form 4972

Filing statuses 3 or 4 enter combined total of both spouses

1. 14,000
2. Enter $13,500 ($32,000 if you or your spouse is 65 or older on 12/31/16). 2. - 13,500
3. Income subject to alternate tax. Subtract line 2 from line 1. 3. 500
4. Multiply line 3 by 8.98%. (.0898) 4. 45
5. Using the tax tables, determine the tax on the taxable income from line 38 of the IA 1040 and enter here. Status 3 and 4 filers look up the tax separately, combine and enter total here.* 5. 205
6. Compare the amounts on line 4 and line 5. Enter the smaller amount here and on line 39, IA 1040**. 6. 45

* In this example, the spouse's tax is $62 and yours is $143.
** In this example, the amount to enter on line 39 for the spouse is $19; the amount to enter for you is $26.

Example 2

Married couple with net income from line 26 of the IA 1040 of $11,000.
They have a pension exclusion on line 21 of the IA 1040 of $4,000.
They are using Filing Status 2.

1. Enter the total of:

(a) Net income from line 26, IA 1040                               

(b) Pension exclusion from line 21, IA 1040                              

(c) Reportable Social Security benefits from line 11 of the Social Security Worksheet     

(d) lump-sum distribution income subject to tax on federal form 4972

Filing statuses 3 or 4 enter combined total of both spouses

1. 15,000
2. Enter $13,500 ($32,000 if you or your spouse is 65 or older on 12/31/16). 2. - 13,500
3. Income subject to alternate tax. Subtract line 2 from line 1. 3. 1,500
4. Multiply line 3 by 8.98%. (.0898) 4. 135
5. Using the tax tables, determine the tax on the taxable income from line 38 of the IA 1040 and enter here. Status 3 and 4 filers look up the tax separately, combine and enter total here. 5. 175
6. Compare the amounts on line 4 and line 5. Enter the smaller amount here and on line 39, IA 1040. 6. 135


Example 3

Married couple with net income from line 26 of the IA 1040 of $35,000.
They have a pension exclusion on line 21 of the IA 1040 of $4,000. They have reportable Social Security benefits on line 11 of the Social Security Worksheet of $2,000.
They are using Filing Status 2. One spouse is 65 or older.

1. Enter the total of:

(a) Net income from line 26, IA 1040                               

(b) Pension exclusion from line 21, IA 1040                              

(c) Reportable Social Security benefits from line 11 of the Social Security Worksheet    

(d) lump-sum distribution income subject to tax on federal form 4972

Filing statuses 3 or 4 enter combined total of both spouses

1. 41,000

2. Enter $13,500 ($32,000 if you or your spouse is 65 or older on 12/31/16).

2.

- 32,000

3. Income subject to alternate tax. Subtract line 2 from line 1.

3.

9,000

4. Multiply line 3 by 8.98%. (.0898)

4.

808

5. Using the tax tables, determine the tax on the taxable income from line 38 of the IA 1040 and enter here. Status 3 and 4 filers look up the tax separately, combine and enter total here.

5.

915

6. Compare the amounts on line 4 and line 5. Enter the smaller amount here and on line 39, IA 1040.

6.

808

 

Married Separate Filers: (including status 4):

If you are using the tax tables, the formula at the end of the tax tables, or the tax rate schedule:Enter the tax for line 38, column A , on line 39, column A. If filing status 3, also enter the tax for line 38, column B, on line 39, column B. If you are using the alternate tax: Use the combined net incomes of both spouses to compute the alternate tax. Prorate the alternate tax between spouses in the ratio of the net income of each spouse to the combined net income of both spouses. “Net income” for purposes of this proration is the amount from line 26, plus any pension exclusion from line 21, reportable Social Security benefits on line 11 of the Social Security Worksheet and any lump-sum distribution income subject to tax on federal form 4972.

(Examples of how to prorate)

The Alternate Tax Calculation Worksheet is available as a pdf.

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