# Tax or Alternate Tax

Line
39
Step
9
Step Subject
Tax, Credits & Checkoff Contributions
Instruction Year
2014

## Who CAN use the alternate tax calculation?

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

If the combination of your net income(s) from line 26 PLUS any pension exclusion taken on line 21 of the IA 1040 and any reportable Social Security from step 4 of the IA 1040 exceeds \$13,500 (\$32,000 if you or your spouse is 65 or older on 12/31/14)

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

...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 attached to the return.

## 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 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
• tax rate schedule

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

• less than \$95,600, use the tax tables (pdf)
• more than \$95,600, use the formula at the end of the tax tables

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      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 12/31/14). 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      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 12/31/14). 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 43 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      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 12/31/14). 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      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 12/31/14). 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 and reportable Social Security benefits on line 11 of the Social Security Worksheet. (Examples of how to prorate)

The Alternate Tax Calculation Worksheet is available as a pdf.

Go to Line 38

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