Income Taxes

FinZot computes the household’s full federal and state tax bill every projection year and pays it in that year (how a year works). The rules below are standard and fully implemented unless the page says otherwise. Tax tables are indexed by year, and statutory figures elsewhere in this reference carry their tax year.

Filing status

Single, married filing jointly, head of household, and qualifying surviving spouse. Married filing separately is not modeled. A qualifying surviving spouse uses the joint brackets and standard deduction, and the single-filer thresholds for Social Security taxation, student loan interest, QBI, the child tax credit, IRMAA, and the Additional Medicare tax.

Federal income tax

Ordinary income brackets for each filing status.
Long-term capital gains and qualified dividends stacked on top of ordinary income at the 0%, 15%, and 20% rates.
Depreciation recapture on rental property at up to 25%.
Net investment income tax of 3.8%.
Taxable Social Security under the provisional income rules, at the 50% and 85% tiers.
The alternative minimum tax, with the exemption, its phase-out, and the 26% and 28% rates. Only exclusion items are modeled: the standard deduction, state and local taxes, and the senior bonus. Because no deferral items are modeled, FinZot never generates an AMT credit, though a starting credit balance is used up.

Deductions

The standard deduction, with the extra amount for each person 65 or older, and the senior bonus deduction for 2025 through 2028.
Itemized deductions are taken only when they exceed the standard deduction. Four items count: deductible mortgage interest with the pre-2018 and post-2017 loan limits, state and local taxes under the current cap and its phase-out, investment interest, and Itemized Deductions you enter yourself. There is no separate charitable or medical deduction. Enter those as itemized deductions, and mark each as federal, state, or both. Your property tax and mortgage interest also count on your state return, by that state’s rules. An itemized deduction takes an amount and an effective period, so it can start and stop on retirement or any other milestone, the same way an expense does. FinZot applies no income-based limit to it and nothing carries forward, so a charitable gift larger than the law would allow still deducts in full (qualified charitable distributions).
Above the line: traditional IRA contributions with the participant and spouse phase-outs, student loan interest with its cap and phase-out, half of self-employment tax, self-employed health insurance, and Solo 401(k) contributions. Employer plan deferrals, payroll HSA contributions, pension contributions, and premiums taken from a paycheck reduce W-2 wages instead (expenses and healthcare).
The qualified business income deduction at 20%, with the phase-out for specified service businesses and the minimum deduction for active participants. The wage and property limits are not modeled.
Investment interest is deductible up to net investment income. The excess carries forward, and a starting Disallowed Investment Interest Balance can be entered.

Credits

The child tax credit, with its income phase-out, for children under 17. No other credits are modeled. The ACA premium tax credit is computed separately (expenses and healthcare).

Capital gains and losses

A realized gain is short-term only when its lot has a date and was held a year or less on December 31 (allocation, lots, and selling). Short-term gains realized before a mid-year plan start are entered at plan start (plan start date).
Gains and losses across brokerage accounts and property are netted. The primary residence exclusion applies first. Short-term gains are netted too. The carryforward is treated as long-term, so the year’s losses and the carryforward go against long-term gains first, then against short-term gains, and only what is left is taxed as ordinary income.
Up to $3,000 of net loss offsets ordinary income each year. The rest carries forward indefinitely, and a starting Capital Loss Carryforward can be entered.
There is no wash-sale rule.

Payroll taxes

Social Security tax for each earner up to the wage base, which is indexed each year.
Medicare tax on all wages, plus the Additional Medicare tax above the threshold.
Self-employment tax, coordinated with any W-2 wages the same person earns, with half deducted above the line.

State and local taxes

Forty-one states with an income tax, and the District of Columbia (DC), each with its brackets, standard deduction, personal and dependent exemptions, and any local income tax or state payroll tax, for 2025 onward. DC can be chosen wherever a state can: the starting residence, a move, or a property’s own state. Elsewhere in this reference, a rule stated for states covers DC too unless DC is named apart. US territories cannot be chosen. The nine states with no income tax are modeled as zero. State figures are less thoroughly checked than federal ones, and some states’ retirement income rules are more detailed than FinZot can express yet. Treat state tax as an approximation.
Thirteen states withhold an employee payroll contribution on top of income tax. FinZot models all thirteen. They are California, Vermont, Washington, New York, New Jersey, Massachusetts, Connecticut, Rhode Island, Oregon, Colorado, Delaware, Maine and Minnesota. Most of them fund a paid family and medical leave program. New Jersey and Rhode Island also fund disability, New Jersey also funds unemployment, Vermont funds child care, and Washington also funds long-term care. Rates run from a fraction of a percent to about 1.4% of wages in 2026. Every state but California stops the contribution at a wage cap. Eleven of the thirteen contributions count as a state income tax, so they join state and local income tax in the SALT deduction. Vermont’s and Washington’s do not count, so they reduce cash without adding to the deduction. Maryland’s program is not modeled, because its contributions do not begin until 2027. DC’s paid leave program is funded by employers alone, so FinZot withholds nothing from a DC paycheck. In Delaware and Maine FinZot withholds the most the employer is allowed to deduct, so a household whose employer absorbs part of the share is charged too much. Each earner’s wages meet the cap separately, as the programs apply it.
State taxable income starts from federal AGI. Adjustments are limited to seven kinds: interest on federal obligations subtracted in every state, since federal law forbids states from taxing it, municipal bond interest added back where the state taxes it, HSA contributions added back where the state taxes them (California and New Jersey), pre-tax retirement contributions added back where the state does not follow the federal exclusion (Pennsylvania for every plan and the IRA deduction, New Jersey for everything but a 401(k)), part of a long-term capital gain subtracted where the state excludes one, the state’s treatment of Social Security, and the state’s retirement income exclusion.
Municipal bond interest is taxed by your state. Simplification: FinZot does not know which state issued the bonds behind a tax-exempt fund, so it treats the whole yield as out-of-state paper and adds it back to state MAGI unless the resident state exempts municipal interest whatever the issuing state. North Dakota is the only one that does, and the nine states with no income tax never reach it. DC taxes interest on other states’ bonds from 2025, so FinZot adds back a DC resident’s whole yield too. A resident of a state that exempts its own bonds therefore pays a little more state tax in FinZot than on the in-state share of a real fund.
Each state builds its own deduction. FinZot follows one of five patterns, depending on the state.
- Nine states grant no deduction at all, only exemptions. They are Connecticut, Illinois, Indiana, Massachusetts, Michigan, New Jersey, Ohio, Pennsylvania and West Virginia. A deduction you mark as state-deductible has no effect in these states.
- Rhode Island, Vermont and Wisconsin allow a standard deduction and no itemizing. Louisiana and South Carolina join them from 2026.
- Some states take the deduction from your federal return. They are Colorado, Idaho, Iowa, Missouri, New Mexico and North Dakota, plus Montana from 2026 and South Carolina for 2025. Their standard deduction is the federal one, including the extra amount at 65. Their itemized deduction is your federal one without state income tax. It uses the deductions you marked federal, not state.
- The other states itemize by their own rules. Each starts from your state-deductible entries and adds whichever of your property tax, mortgage interest and investment interest it allows.
- DC pairs a standard deduction of its own with itemizing by its own rules. The standard deduction is $15,000 single, $22,500 head of household and $30,000 joint in 2025 and 2026, and it rises with inflation after that. DC adds the federal extra amount at 65. From 2030 the federal standard deduction replaces DC’s own. From 2026 through 2028 DC also allows the federal senior bonus, up to $6,000 for each person 65 or older, on top of either deduction. DC did not allow it in 2025. DC’s rules from 2026 come from its fiscal year 2027 budget act. That act was still under review by Congress in autumn 2026, and in February 2026 Congress overturned an earlier DC act that departed from the federal rules. FinZot models the law as enacted.
States that itemize by their own rules differ line by line. California, New York, Virginia, Kansas, Arkansas, Hawaii, Maine and DC count property tax in full. They ignore the federal cap on state and local taxes. Alabama, Delaware, Maryland, Mississippi, Nebraska, Oklahoma and Oregon hold property tax to the federal cap. Arizona does too for 2025, and North Carolina from 2026. Georgia and Minnesota hold property tax to $10,000. Arizona does too from 2026, and North Carolina for 2025. Kentucky leaves property tax out. Kansas and North Carolina leave out investment interest. For 2025, Louisiana and Montana leave out all three, so only your own entries count. North Carolina caps mortgage interest and property tax together at $20,000. Oklahoma caps property tax and interest at $17,000. These caps and the $10,000 ones are set by law and do not rise with inflation. Maine caps property tax and interest at $36,300 in 2025 and $37,100 in 2026. Deductions you enter yourself stay outside all three combined caps. Georgia, Oklahoma, Virginia and DC make the same choice you make federally. Maine, Maryland and Nebraska let you itemize only if you itemize federally, and so does Louisiana for 2025.
Some state deduction rules are simplified. Where a state follows your federal choice, FinZot judges that choice without your state income tax. A household that itemizes federally only because of that tax is treated as taking the standard deduction. Mortgage interest always uses the federal loan limits. California, New York, Hawaii and Arkansas still allow interest on up to $1,000,000 of debt. Arizona and Georgia let their own income tax into the itemized deduction, and Hawaii does below its income limits. Iowa and North Dakota never take it out. FinZot takes it out in every state. Maryland, Minnesota, Maine, Virginia and Hawaii cut deductions for high earners, and FinZot does not model those cuts. It also skips a second New York cut that starts near $400,000 of federal AGI. High earners in these states are allowed more than the state allows.
New York cuts itemized deductions from $100,000 of income. A quarter of the itemized total phases out over the first $50,000 of New York AGI above a starting point. The starting point is $100,000 single, $150,000 head of household or $200,000 joint. A second quarter phases out between $475,000 and $525,000. Above $1,000,000, only half the charitable deduction survives. Above $10,000,000, a quarter survives. FinZot treats the deductions you enter yourself as the charitable ones. These amounts are set by law and do not rise with inflation.
California cuts itemized deductions for high earners. Federal AGI over the year’s threshold ($252,203 single, $378,310 head of household, $504,411 joint in 2025) reduces the deductions California allows by the lesser of 6% of the excess and 80% of the deductions themselves. Investment interest does not count toward that 80%, so it always survives. California also leaves out medical, casualty and gambling losses. FinZot exposes the deductions you enter yourself in full, so a household whose entries are mostly medical is limited by more than the FTB would limit them.
DC cuts itemized deductions above $200,000 of income. DC adjusted gross income over $200,000 reduces the itemized total by 5% of the excess. The cut never reaches investment interest. The $200,000 is the same for every filing status. It is set by law and does not rise with inflation.
Utah’s taxpayer tax credit is modeled: Utah grants no deduction of its own, and instead credits 6% of your federal standard or itemized deduction plus $2,111 per dependent, less 1.3% of Utah taxable income over $18,213 single, $27,320 head of household, or $36,426 joint. The credit is nonrefundable and stops at zero tax.
Retirement income exclusions distinguish IRA withdrawals, employer plan withdrawals, pensions, and military pensions, with the age minimums and per-filer or per-return caps each state sets. This is why IRA and employer plan withdrawals are reported separately. A private top-hat 457(b) does not count as an employer plan here. Its withdrawals are wages on your W-2, not pension income, so no state exclusion reaches them. A governmental 457(b) counts like a 401(k) or 403(b).
Four states leave part of a long-term gain out of their base. Arkansas excludes 50%, South Carolina 44%, North Dakota 40%, and Wisconsin 30% of the year’s net long-term capital gain. Short-term gain is never excluded, and a year with a net loss excludes nothing. Not modeled: Arkansas exempts gain above $10 million outright, Wisconsin excludes 60% of a farm asset gain, and Vermont’s exclusion is absent.
Two states charge their own tax on investment gain, on their own base. Washington levies a 7% capital gains excise on net long-term gain from securities above a standard deduction of $278,000 per return in 2025 — one deduction however a couple files — rising to 9.9% on the part of the taxable gain over $1 million; real estate and anything sold inside a retirement account are outside that base, and Washington has no income tax otherwise. Minnesota adds 1% on net investment income above $1 million on top of its brackets. Both appear as their own line, State capital gains tax, apart from state income tax. Minnesota’s counts toward the SALT deduction; Washington’s does not, because Washington’s own supreme court held it an excise rather than an income tax. Not modeled: Washington’s charitable and family-business deductions, and Montana’s separate 3.0% / 4.1% rates for long-term gain. Every other state taxes capital gains at its ordinary rates.
Massachusetts charges 9% on income above $1,107,750 in 2026. The 4% surtax sits on top of the 5% rate for the part of taxable income over that figure. The threshold is the same for every filing status and rises each year. A withdrawal or conversion sized to a bracket sees it.
DC taxes every filing status on one schedule. Its rates run from 4% to 10.75%, and a joint return uses the same brackets as a single one. DC exempts Social Security in full. It has no general exclusion for IRA, employer plan, pension or military retirement income, and no personal or dependent exemptions. Not modeled: DC’s unincorporated business franchise tax, 8.25% on the income of a DC business with more than $12,000 of gross receipts. From 2026 DC also taxes that income on the individual return and credits the franchise tax against it, so the two together cost whichever is larger. FinZot charges only the individual tax, which is too little when the franchise tax is larger, as it can be for a lower-earning business, and it charges nothing to a nonresident who owns a DC rental. Also not modeled: filing separately on the same return, which DC lets a married couple choose when it costs less, as it usually does for two earners, since DC’s joint brackets are no wider than a single filer’s. FinZot always files a DC couple jointly, so a two-earner household pays more DC tax than it would. Neither is DC’s exclusion of federal and DC government survivor annuities for a survivor 62 or older, nor its earned income credit, other credits or deduction for 529 contributions.
Local income tax reaches New York City, Yonkers, Maryland’s 24 subdivisions, Indiana’s 92 counties and the Portland area. New York City, the Maryland counties and the Indiana counties tax the same taxable income the state does. Indiana’s county tax is owed by every resident, so a county is chosen with the state the way a Maryland county is, and it runs at that county’s own rate — 0.5% in Porter County to 3.0% in Randolph County — on Indiana income after exemptions, retirement withdrawals included. Yonkers charges its residents a surcharge instead, 16.75% of New York State tax after credits. Anything that cuts the state bill cuts the Yonkers bill with it. A New York City household also gets the school tax credit. It is $63, or $125 filing jointly, while federal AGI is $250,000 or less. On top of that comes a rate reduction amount, worth 0.171% of city taxable income up to a threshold and 0.228% above it, and nothing at all over $500,000 of city taxable income. FinZot treats the credit as nonrefundable, so it stops at zero city tax. Not modeled: the city’s household credit and earned income credit, Maryland’s local credits, and every locality in the other states that levy one.
Oregon’s Portland-area taxes start above a threshold. A Multnomah County resident owes the county’s Preschool for All tax, 1.5% of Oregon taxable income over $125,000 ($200,000 filing jointly) and 3% over $250,000 ($400,000), and Metro’s supportive housing tax, 1% over $128,000 ($205,000). In the rest of the Metro district — the parts of Clackamas and Washington counties inside it — only the 1% applies. Below the threshold nothing is owed, so a large conversion or realization can turn the tax on by itself. Oregon does not ask for a locality: most of the state is outside both districts.
A move changes the state and locality from that year on.

The effective rate

The effective rate FinZot shows is total tax divided by AGI. It is broader than the effective rate on a tax return, which usually divides income tax alone by income. FinZot’s figure also counts payroll tax, self-employment tax, Medicare surcharges, and penalties. Expect it to read higher than a rate you work out from a 1040.

When taxes are paid

FinZot settles each year’s full tax bill inside that year. Federal, state, local, payroll, penalties, and surcharges are all computed at year-end on what the year actually did and paid from that year’s cash (how a year works).

There is no withholding anywhere and no refund. Income is shown gross, and a Roth conversion moves its full amount (Roth conversions and withdrawals). The tax figure in the cash flow is the year’s actual bill, not the amount an employer would have taken out of each paycheck.
Nothing carries into the following year. No year after the first shows a refund or an April payment. The first year of a mid-year start can show a refund, when the withholding and estimated payments entered for the months before the start exceed that year’s bill.
This is deliberate. Settling in-year is what lets a withdrawal or conversion sized to a bracket, an IRMAA tier, or an ACA threshold be measured against the year’s real tax rather than an estimate (sizing matches the final bill).
Withholding and estimated payments exist only for a mid-year start. They are year-to-date inputs for the months before the plan begins, and they credit against the first year’s bill (plan start date).
A balance due on a prior year’s return is not part of the model. Enter it as a one-time expense in the first projection year. Enter a refund from a prior year’s return as a tax-free income stream in that year (income streams).

One caveat. In a year with an unusually large tax bill, such as a large Roth conversion or a large realized gain, part of the real payment would fall the following April. In that year the cash view shows the payment about a year earlier than it would really happen. Ending balances are unaffected, because the same dollars leave either way.

Simplifications

Ages are whole years. The 59½ and 65 tests are met from the year the person turns 60 or 66.
Filing status is set per year and does not change mid-year.
MAGI is treated as AGI except where a rule adds items back, such as municipal interest for IRMAA and the ACA credit.
FinZot does not track IRA basis. A nondeductible traditional IRA contribution that is later converted is taxed in full (contributions, Roth basis, and the 5-year rule).
A net rental loss is limited by the §469 passive activity rules per property, with the $25,000 active-participation allowance and release on sale (rentals). The allowed loss is deducted from other income in the year it occurs, floored at zero total income.
Not modeled: the kiddie tax, net operating losses, the alternative minimum tax on deferral items, state AMT, and state credits beyond exemption credits.