My Total Rebate pile (California Purchase)

[Maquis]

A retiree couple can earn just over $100k, with a lot of cap gains, and have zero tax liability with standard deduction. We are doing Roth conversions to generate enough tax liability.

My situation exactly.

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[Mach1E]

I'm not sure the math works. Check with your CPA. To get CA increased rebate the income is limited to 4 times of the federal poverty level. For example, for an individual, it's about $51,000. But the federal tax liability with such income is anywhere from zero to $4000 depending on deductions and adjustments.

Yup, wondering the same thing.

You can’t keep income below $51k and owe $7,500 in taxes.

 

[Mach1E]

Very interesting thanks for pointing that out. I revised my post before I read this because after thinking about it 22% of 50k is 11 so there would be at least the minimum liability if someone just squeezed under the 400% anyway.

Thanks again... Today I learned!

That’s not how federal income taxes work though.

If you have 51k income you would pay 0% on the first part (standard deduction), then 10% on the next, then 12%, then 22% etc.

Your effective tax rate (average) would be significantly lower than your marginal tax rate (top rate, for example 22%).

Here is a simple calculator:

https://www.aarp.org/money/taxes/10...VxBGIgwu7PDMqp96kSEaAqZtEALw_wcB&gclsrc=aw.ds

A married couple needs over 90,000 in gross taxable income to owe $7,500 in federal income taxes.

At $51k? They’re only paying around 5% in taxes:

Your taxes are estimated at $2,713. This is 5.32% of your total income of $51,000. Your total tax payments for the year were $0. Your outstanding tax bill is estimated at $2,713. This puts you in the 12% tax bracket.

 

[yngwenli]

As others have mentioned, if you qualify for the $4.5k in CA CVRP (pushing your income down), how can you qualify for the $7.5k federal credit (raising your taxable income)?

 

[DevSecOps]

That’s not how federal income taxes work though.

If you have 51k income you would pay 0% on the first part (standard deduction), then 10% on the next, then 12%, then 22% etc.

Your effective tax rate (average) would be significantly lower than your marginal tax rate (top rate, for example 22%).

Here is a simple calculator:

https://www.aarp.org/money/taxes/10...VxBGIgwu7PDMqp96kSEaAqZtEALw_wcB&gclsrc=aw.ds

A married couple needs over 90,000 in gross taxable income to owe $7,500 in federal income taxes.

At $51k? They’re only paying around 5% in taxes:

Your taxes are estimated at $2,713. This is 5.32% of your total income of $51,000. Your total tax payments for the year were $0. Your outstanding tax bill is estimated at $2,713. This puts you in the 12% tax bracket.

I was right in my original thought process that I deleted then. Things looked strange to me. I don't think the OP will get what he thinks he'll get. But again, taxes are not my thing so I'm out of my league on the specifics.

Thank you

 

[MachE1977]

California is a great state for long term homeowners to retire in.

Our property tax starts out at only 1% of value, but then can only increase at a maximum of 2% per year on that 1%. It’s cumulative, but that means the second year tax is 1.02% of assessed value. After some time, the property tax rate a long term owner pays (and it’s portable for seniors) is waaay behind home values, so you get homes today worth over $1,000,000, the homeowner paying less tax than someone buying a house for $400,000.

Our sales tax is unexceptional, it’s with income tax that we get hosed.

Agreed. For Military Retirees also, I have compared other States benefits to California's are they are just about equal or less. Just the fact that California will pay for a Dependents College Education is great. State Taxes are a lot but not something that's going to kill your income.

Here are the California Rebate Increase Numbers:

 

[mburtsvt]

I'm not sure the math works. Check with your CPA. To get CA increased rebate the income is limited to 4 times of the federal poverty level. For example, for an individual, it's about $51,000. But the federal tax liability with such income is anywhere from zero to $4000 depending on deductions and adjustments.

This is where planning come in. My tax return that the California rebate was based on was my 2019 tax return. I qualified for the $4500 rebate since I was on Social Security that year and that was my only income. In 2020 I took a withdrawal from my 401(k) that would tax me enough to cover the anticipated tax to make sure that I would get all of the $7500 fed credit.

In short I got the Calif. rebate based on 2019 tax return and will be getting the Fed tax credit based on 2020 tax return. And yes I do have a very good Tax guy.

 

[mburtsvt]

I was right in my original thought process that I deleted then. Things looked strange to me. I don't think the OP will get what he thinks he'll get. But again, taxes are not my thing so I'm out of my league on the specifics.

Thank you

This is where planning come in. My tax return that the California rebate was based on was my 2019 tax return. I qualified since I was on Social Security that year and that was my only income. In 2020 I took a withdrawal from my 401(k) that would tax me enough to cover the anticipated tax to make sure that I would get all of the $7500 fed credit.

In short I got the Calif. rebate based on 2019 tax return and will be getting the Fed tax credit based on 2020 tax return. And yes I do have a very good Tax guy.

 

[mburtsvt]

Capital gains tax is the same


A retiree couple can earn just over $100k, with a lot of cap gains, and have zero tax liability with standard deduction. We are doing Roth conversions to generate enough tax liability.

Correct answer. It's like getting a pass on taking a IRA withdrawal.

 

[mburtsvt]

As others have mentioned, if you qualify for the $4.5k in CA CVRP (pushing your income down), how can you qualify for the $7.5k federal credit (raising your taxable income)?

This is where planning come in. My tax return that the California rebate was based on was my 2019 tax return. I qualified since I was on Social Security that year and that was my only income. In 2020 I took a withdrawal from my 401(k) that would tax me enough to cover the anticipated tax to make sure that I would get all of the $7500 fed credit.

In short I got the Calif. rebate based on 2019 tax return and will be getting the Fed tax credit based on 2020 tax return. And yes I do have a very good Tax guy.

 

[yngwenli]

I guess with how slow the CA CVRP rebate occurs, sounds like it's certainly possible like you say since you send the rebate request in so long ago (I hear it's over 6 months to process?).

This is why my opinion has always been rich (well off people) are sorta impossible to tax regularly because they have a lot more options/flexibility/$$/power when it comes to how tax laws work.

Just how it is so it's almost a waste of time for government to fight it. Why they just tax the masses (low/middle class) and call it a day.

 

[mburtsvt]

I guess with how slow the CA CVRP rebate occurs, sounds like it's certainly possible like you say since you send the rebate request in so long ago (I hear it's over 6 months to process?).

This is why my opinion has always been rich (well off people) are sorta impossible to tax regularly because they have a lot more options/flexibility/$$/power when it comes to how tax laws work.

Just how it is so it's almost a waste of time for government to fight it. Why they just tax the masses (low/middle class) and call it a day.

I did the request in April and did not get the check until Dec, - so yes it was a long time.

 

[Mach1E]

This is where planning come in. My tax return that the California rebate was based on was my 2019 tax return. I qualified for the $4500 rebate since I was on Social Security that year and that was my only income. In 2020 I took a withdrawal from my 401(k) that would tax me enough to cover the anticipated tax to make sure that I would get all of the $7500 fed credit.

In short I got the Calif. rebate based on 2019 tax return and will be getting the Fed tax credit based on 2020 tax return. And yes I do have a very good Tax guy.

When did you take delivery of your Mach E? In 2020?

Sounds like you did some “ok” planning in 2020 and got lucky with 2019. Interesting that California looks at past income rather than current.

I only rate the 2020 planning as “ok” because if you didn’t need the cash from the 401k distribution you should have done a Roth conversion instead.

If you did need the cash I would change my “ok” to a “great!”

Now if you took delivery in 2021 like most of us, what you did in 2020 is irrelevant.

 

[Mach1E]

I did the request in April and did not get the check until Dec, - so yes it was a long time.

Ok, looking at your post history, it looks like you took delivery in April 2021.

Only your 2021 income matters for the Federal tax credit.

Your 401k distribution in 2020 doesn’t affect it at all.

I don’t know anything about the California thing so I can’t speak to that.

 

[mburtsvt]

Ok, looking at your post history, it looks like you took delivery in April 2021.

Only your 2021 income matters for the Federal tax credit.

Your 401k distribution in 2020 doesn’t affect it at all.

I don’t know anything about the California thing so I can’t speak to that.

Correct...I should have pushed the years forward. It should have said 2020 was the rebate tax year, (the $4500), and this year (2021) will be the $7500) tax credit year when I file.

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