Federal Tax Logic (2026)
Source: One Big Beautiful Bill Act (OBBB). See: IRS Release on OBBB Inflation Adjustments
This document details the federal tax calculation logic implemented in the Retirement Tax Plan application for the tax year 2026, incorporating changes from the "One Big Beautiful Bill" Act.
1. Income Categorization
Income is classified into two buckets:
- Ordinary Income: Wages, Social Security (taxable portion), Pensions, IRA Withdrawals, Short-Term Capital Gains.
- Long-Term Capital Gains (LTCG): Gains from assets held for more than one year.
2. Standard Deduction
The Standard Deduction reduces the amount of Ordinary Income subject to tax.
| Filing Status | Standard Deduction |
|---|---|
| Single | $16,100 |
| Married Filing Separately (MFS) | $16,100 |
| Married Filing Jointly (MFJ) | $32,200 |
| Head of Household (HoH) | $24,150 |
Senior Bonus (Age 65+)
The OBBB significantly enhances the deduction for seniors.
- Standard Senior Bonus:
- Single / HoH: $2,050 additional deduction.
- MFJ / MFS: $1,650 additional deduction per person.
- OBBB Supplemental Senior Deduction:
- Amount: An additional $6,000 per eligible senior ($12,000 for MFJ if both 65+).
- Phase-out: This extra deduction is eliminated if Modified AGI exceeds:
- $75,000 for Single/MFS/HoH.
- $150,000 for Married Filing Jointly.
Example: A Single senior with $50k income receives: $16,100 (Standard) + $2,050 (Bonus) + $6,000 (OBBB) = $24,150 Total Deduction.
3. Social Security Taxability
Social Security benefits are not fully taxable. The taxable portion is determined by Provisional Income.
Formula:
Provisional Income = Modified AGI + (0.5 * Social Security Benefits)
(Note: In this application, Modified AGI is approximated as Total Income excluding SS)
Taxability Thresholds
Single / HoH / MFS:
- 0% Taxable: Provisional Income < $25,000
- Up to 50% Taxable: $25,000 ≤ Provisional Income < $34,000
- Up to 85% Taxable: Provisional Income ≥ $34,000
Married Filing Jointly (MFJ):
- 0% Taxable: Provisional Income < $32,000
- Up to 50% Taxable: $32,000 ≤ Provisional Income < $44,000
- Up to 85% Taxable: Provisional Income ≥ $44,000
The application calculates the exact taxable amount using the standard IRS worksheet logic.
4. Ordinary Income Tax Brackets (OBBB 2026)
Ordinary income (after deductions) is taxed according to the progressive tax brackets below.
| Rate | Single | MFJ | HoH | MFS |
|---|---|---|---|---|
| 10% | $0 - $12,400 | $0 - $24,800 | $0 - $17,500 | $0 - $12,400 |
| 12% | $12,401 - $50,400 | $24,801 - $100,800 | $17,501 - $66,800 | $12,401 - $50,400 |
| 22% | $50,401 - $105,700 | $100,801 - $211,400 | $66,801 - $106,000 | $50,401 - $105,700 |
| 24% | $105,701 - $201,775 | $211,401 - $403,550 | $106,001 - $202,000 | $105,701 - $201,775 |
| 32% | $201,776 - $256,225 | $403,551 - $512,450 | $202,001 - $258,000 | $201,776 - $256,225 |
| 35% | $256,226 - $640,600 | $512,451 - $768,700 | $258,001 - $645,000 | $256,226 - $640,600 |
| 37% | $640,601+ | $768,701+ | $645,001+ | $640,601+ |
5. Long-Term Capital Gains (LTCG) Tax Brackets
LTCG and Qualified Dividends benefit from lower tax rates (0%, 15%, 20%). Stacking Rule: LTCG logic "sits on top" of taxable ordinary income. The bracket threshold applies to (Taxable Ordinary Income + LTCG).
| Rate | Single | MFJ | HoH | MFS |
|---|---|---|---|---|
| 0% | $0 - $49,850 | $0 - $99,700 | $0 - $66,750 | $0 - $49,850 |
| 15% | $49,851 - $550,000 | $99,701 - $618,000 | $66,751 - $584,000 | $49,851 - $550,000 |
| 20% | $550,001+ | $618,001+ | $584,001+ | $550,001+ |
Note: The Net Investment Income Tax (NIIT) of 3.8% is not currently implemented in this model.