Is there any 1% minimum tax on taxable-income [similar to AMT for high-income] when you are in low 15% bracket and have substantial long term capital-gains?

e.g. US, single, std-deduction, 2014.
ordinary-income = 16150, capital-gains-LT = 20000. So Taxable-income (TI) is 25000 [std-deduction+personal-exemption =10150]

Since 15% bracket runs till 36900, cap-gain tax is 0% Ordinary income that is taxable is only $5000 and at 10%, tax is $500.

But tax software shows tax as $500 + 1% of TI = $500+$250 = $750 [I suspected bug in software, but want to know if I'm missing some tax code]

That is effectively there is a 1% tax on capital-gains. What am I missing? I thought the tax should be just $500 and no tax on the capital-gains.


So, lets get it straight. I'm using 2014 numbers and my Intuit tax software:

Regular Income: 16150
Capital Gains:  20000
AGI:            36150
Deduction:       6200
Exemption:       3950
Taxable Income: 26000
Tax:              603
ACA Tax:          260
Total Tax:        863

Let's ignore the ACA tax here, it comes into play since you didn't mention anything about the ACA mandate insurance.

Looking at the calculation worksheet (page D-14 here) - the account is right (the tax amount may be a bit off, since the tax tables are still not updated for 2014).

You have $20000 capital gains, and $6000 ordinary income. Capital gains are taxed at 0, as expected. Ordinary income is taxed at $603, per the tax tables.

  • Thanks; I wasn't aware of this ACA and 1% penalty; I stay outside US so I guess I should get this ACA excemption (Not Lawfully Present). So I believe my tax should be 603 and not 863. [BTW yes there was a mistake in my calculation that my taxable ordinary income is $6000 and not $5000] – Karthik S Nov 23 '14 at 6:29
  • What 1% penalty? – littleadv Nov 23 '14 at 9:12
  • If no health-care-insurance, the penalty is minimum $95 or 1% of income-above-$10k. I think this ACA tax is the penalty. kff.org/infographic/… – Karthik S Nov 23 '14 at 11:46
  • Is this ACA-tax mandatory or I should be able to avoid it? I used the online taxslayer.com website; even when I say I have health-insurance, it still says my final tax is $863. It finds tax-due as $603; but in final Total-tax gives it as $863. • Standard or itemized deductions $6,200.00 • Subtract line 40 from line 38 $29,950.00 • Exemption amount $3,950.00 • Taxable income $26,000.00 • Alternative minimum tax $0.00 • Tax due $603.00 • Adjusted Tax $603.00 Total Tax hide details $863.00 – Karthik S Nov 23 '14 at 14:35
  • @KarthikS There's a special form to add to your tax return. These forms have been drafted, but not yet formalized. See here for more details: irs.gov/pub/irs-pdf/p5156.pdf – littleadv Nov 23 '14 at 22:39

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.