Internet TAXSIM Version 32

Internet TAXSIM

  • On open beta of a test version of an update to Taxsim with many improvements (and coded through 2023 law) is now available. Please give it a try.

    As of 13 Jan 2021 TAXSIM32 incorporates state income tax laws through 2019 including the TCJA with the business income deduction and the CARES act recovery rebates.

    Note: taxsim 32 has been obsoleted. It will persist for replications only. Please update to the latest version for the latest release with a separate wages and self-employment income, and an improved method of specifying dependent ages.

    TAXSIM is the NBER's FORTRAN program for calculating liabilities under US Federal and State income tax laws from individual data. Scholars interested in using TAXSIM to calculate tax liabilities and marginal tax rates should follow the these instructions for submitting data. Liabilities are returned as an online web page in a few seconds. The program itself is available to NBER associates and government agencies.

    The federal law is accurate to the best of our abilities through 2023, including the ACA taxes on earned and unearned income (but not the penalties for lacking health insurance) and the pass-through features of the TCJA (except for the limitations based on capital or employees). For indexed parameters after 2020 we assume an inflation rate of 2.5%. State tax is 1977 through 2019 with 2021+ calculated using the "real" value of the 2020 law.

    Other interfaces

    In the list of variables below the Stata names are in bold. Several users have contributed codes for converting common survey files to taxsim9 format, you should have no trouble modifying them for taxsim32.

    Further changes will be noted in a change log .

    Calculate liabilities for one taxpayer (fill every numbered box)

    Marginal Rates with respect to: Other Income Wage Income Taxpayer Earnings Spouse Earning Long Term Gains Dividends Other deductions Dividends Mortgage Interest Don't bother

    Optional tax plan

    1. taxsimid Case ID (arbitrary, but must be a non-negative numeric)
    2. yearTax year ending Dec 31(4 digits between 1960 and 2023, but state must be zero if year is before 1977 or after 2023. We don't have code for state laws before 1977.) State tax laws are effectively inflated by 2.5%/year after 2018.
    3. state (SOI codes. These run from 1 for Alabama to 51 for Wyoming and are not the Census or PSID codes. See state list,and also item two above.). Use zero for "no state tax calculation".
    4. mstat Marital Status
    • 1. single or head of household (unmarried)
    • 2. joint (married)
    • 6. separate (married). Note that Married-separate is not usually desirable under US tax law.
    • 8. Dependent taxpayer. (Typically child with income).
    Head of Household status is determined by taxsim32 from dependent information.
    5. page Age of primary taxpayer December 31st of the tax year (or zero). Taxpayer age variables determine eligibility for additional standard deductions, personal exemption, EITC and AMT exclusion.
    6. sage Age of spouse (or zero).
    7. depx Number of dependents (part of personal exemption calculation).
    8. dep13 Number of children under 13 with eligible child care expenses (Dependent Care Credit).
    9. dep17 Number of children under 17 for the entire tax year (Child Credit). This includes children under 13.
    10. dep18 Number of qualifying children for EITC. (Typically younger than 19 or younger than 24 and a full-time student). Note that a young child is counted in all three depNN variables.
    11. pwages Wage and salary income of Primary Taxpayer (include self-employment but no QBI).
    12. swages Wage and salary income of Spouse (include self-employment but no QBI). Note that this must be zero for non-joint returns. Watch out for this if you use current marital status and last year's income.
    13. dividends Dividend income (qualified dividends only for 2003 on).
    14. intrec Interest Received (+/-)
    15. stcg Short Term Capital Gains or losses. (+/-)
    16. ltcg Long Term Capital Gains or losses. (+/-)
    17. otherprop Other property income subject to NIIT, including
    • unearned or limited partnership and passive S-Corp profits
    • rent not eligible for QBI deduction
    • non-qualified dividends
    • capital gains distributions on form 1040
    • other income or loss not otherwise enumerated here
    18. nonprop Other non-property income not subject to Medicare NIIT such as:
    • alimony
    • nonwage fellowships
    • state income tax refunds (itemizers only)
    Adjustments and items such as
    • alimony paid
    • Keogh and IRA contributions
    • foreign income exclusion
    • NOLs
    can be entered here as negative income.(+/-)
    19. pensions Taxable Pensions and IRA distributions
    20. gssi Gross Social Security Benefits
    21. ui Unemployment compensation received.
    22. transfers Other non-taxable transfer Income such as
    • welfare
    • workers comp
    • veterans benefits
    • child support that would affect eligibility for state property tax rebates but would not be taxable at the federal level.
    23. rentpaid Rent Paid (used only for calculating state property tax rebates)
    24. proptax Real Estate taxes paid. This is a preference for the AMT and is is also used to calculate state property tax rebates.
    25. otheritem Other Itemized deductions that are a preference for the Alternative Minimum Tax. These would include
    26. childcare Child care expenses.
    27. mortgage Deductions not included in item 25 and not a preference for the AMT, including (on Schedule A for 2009)
    • Deductible medical expenses not included in Line 16
    • Motor Vehicle Taxes paid (line 7)
    • Home mortgage interest (Line 15)
    • Charitable contributions (Line 19)
    • Casulty or Theft Losses (Line 20)
    28. scorp Active S-Corp income (is SSTB).
    29. pbusinc Primary Taxpayer's Qualified Business Income (QBI) subject to a preferential rate without phaseout and assuming sufficient wages paid or capital to be eligible for the full deduction. Subject to SECA and Medicare additional Earnings Tax.
    30. pprofinc Primary Taxpayer's Specialized Service Trade or Business service (SSTB) with a preferential rate subject to claw-back. Subject to SECA and Medicare Additional Earnings Tax.
    31. sbusinc Spouse's QBI. Must be zero for non-joint returns.
    32. sprofinc Spouse's SSTB. Must be zero for non-joint returns.

    Return either a URL on our server a live page.

    OR...Upload a (not too large) file with TAXSIM data:

    File to upload:
    Marginal Rates (finite differences) with respect to: Other Income Wage Income Taxpayer Earnings Spouse Earnings Long Term Gains Other Deductions Dividends Mortgage Interest Don't bother
    Show detailed intermediate calculations: Off On Labeled

    Optional tax plan (leave blank)

    Obviously most of these will not be available in the typical survey, which will affect the accuracy of the tax calculation but won't disturb the software. Do not include rental real estate taxes or state income tax as they will be calculated from other data on this page. A state sales tax deduction will be calculated according to publication 600. If items 23,24, 27 and our calculation of state income tax do not exceed the standard deduction, then the taxpayer will be given the standard deduction instead.

    Instructions for preparing data for TAXSIM.

    If you only need a calculation for one taxpayer you can just fill in the blank box beside each of the 30 variables listed above and select "calculate". Don't leave any box blank - use zeroes for none. Also use a zero for item 3 to indicate 'no state tax'. If you leave any blanks, the caclulator will fail silently. Sorry.

    If you have many cases, you can prepare a csv file, with each line representing a tax return. The file may have any number of lines, and we return a web page with tax liability, etc. for all cases within a few seconds.

    The first line of your file should show the field names, using the names in bold on this page. They may be in any order. Only year and mstat are required. Unknown fields will be ignored. Fields may be separated by commas or spaces. No missing value codes are allowed - missing data can be represented by zeroes (except for the two required fields).

    A list of state codes and a crosswalk of Census state codes to SOI codes are available, but you have to do the conversion yourself. If you don't want state tax calculations, just set the state id to zero.

    This is a simplified list of input variables selected to encompass what might be available in a non-tax oriented survey such as the Survey of Consumer Finance or the Consumer Expenditure Survey. Henry and Day have a comparison of income concepts in several surveys which may be helpful. For labor market surveys such as the CPS, you will have to impute (perhaps just a zero) some deduction items. These items are rich enough to cover the ordinary and supertax brackets, the earned income credit, the child care credit, the partial taxation of Social Security, and UI, the secondary earner deduction, the maximum tax on earned income, the AMT, capital gains preferences, NIIT and other important features of the tax code. At the state level, low income allowances, property and rent credits are calculated if data is available.

    If you don't know the wage split between husbands and wives, or if income was QBI or SSTB, you can put it all in one category. This primarily affects FICA and SECA but also child care and secondary earner deductions. The computer won't get the perfect answer, but only you can judge the suitability of the simplification. Obviously ignored in this calculation are some limits, floors and ceilings on some deductions, adjustments, esoteric tax preferences, rental loss limitation, etc. Many of these are available in the full TAXSIM model used internally at the NBER, but have been left out of Internet TAXSIM for the sake of simplicity.

    Never put the same income in more than one box. None of the variables explain or modify another box.

    Farm income is not listed above - you could put it as wages or property income, or split it up. As wages it will be eligible for the EITC, as property income not. I expect that in an audit the IRS would expect any allocation to have a rational basis, but Taxsim can't do the split for you.

    Any income item not mentioned above can be placed wherever you think Taxsim will treat it most correctly for the years you need.

    A number of states allow optional separate filing for husbands and wives. The tax calculator tries both options and selects the lower tax. If separate filing is chosen non-wage income and deductions are split equally.

    Here is a sample taxsim32 input file for two married taxpayers with only 100000 in wages or long term capital gains. Remember missing values must be coded as zero but otherwise the format should be compatible with any generator of .csv files.

    mstat,year,ltcg,pwages 2,1970,100000,0 2,1970,0,100000

    The file may include any number of data lines. While the format is flexible, and values may be of variable length, each value must be separated from the next by one or more spaces or a single comma. Tabs won't work. A new case always begins on a new line. We cannot read .prn files, or any file that uses commas or dots to mark thousands. Spreadsheet binary files of any kind can not be read. Before uploading your file please check for the following common errors:

    • missing value codes (na, dot, -9, etc)
    • out of range state id
    • asterisks
    • value labels anywhere in the input data
    • negative items (except items 15-18 and 29-32)
    • invalid year
    • commas embedded in values
    • tabs between values
    • binary files, (.dta, .xls, .doc, etc).

    The tax calculator stops on any conversion error or value out of range and returns a range error with the case ID.

    Some users are concerned about imputations. Internet TAXSIM only does only one. Social security taxes on wages and business income are imputed and the result used in the calculation of state income tax for the states that have a deduction for that tax. Anything not listed above becomes a zero on the Form 1040. Zero is always a valid entry, although it may be inaccurate.

    Marginal Tax Rates

    In law, the deduction for state tax on the federal return or federal tax on the state return is based on amount paid, not liability. In Taxsim, the deduction is for liability, raising an issue of simultaneity which is resolved by iteration. For example, assuming the taxpayer is an itemizer on both returns, and that they are in a state that allows a deduction for federal tax, then an increase in the wage of a dollar, and that the federal bracket rate is .1 and the state rate is .05, then an additional dollar of wage increases the federal tax by 10 cents in the first round. Then the state tax is calculated and it goes up by .05*.9 = .045. That is a deduction from the federal tax, and so the second round starts with federal income up by only .965, not a full dollar. And so on for 3 rounds.

    There are many notches in the tax law. While most are small, they generate implausible marginal tax rates that are probably not well suited for analytical use. TAXSIM uses four strategies to reduce the number of notches affecting marginal rate calculations.

    1. Since most notches occur at integer dollar boundaries, we add .1 cent to wages and other property income for every taxpayer.
    2. Where step functions are used in the law, we do a linear interpolation along the steps.
    3. The TAXSIM calculation of marginal rates is based on a very small finite difference (1 cent) to minimize the chance of encountering a discontinuity in the tax function, and to make such a discontinuity very obvious if it occurs. For example, a discontinuous dollar jump in tax liability would result in a 10,000 percent tax rate, and be immediately noticable.
    4. If the tax rate is larger in absolute value than 100% (federal) or 25% (state) the finite difference is taken again, but subtracted rather than added. Any remaining unusual marginal rates should be called to our attention.

    These effective marginal rates are important to us, because one of the most important uses TAXSIM can be put to is calculating correct after-tax prices in models of economic behavior. A problem has been the presence of decreasing marginal tax rates (notches) and otherwise implausible marginal rates in these calculations. We maintain a list of significant notches that we have noticed. Although notches generally involved very small sums of money, they could have disproportionate effects on the results of a linear regression, which is sensitive to the squared difference of any observation from the mean.

    All calculations are done in double precision, so the small finite difference should not reduce accuracy. The alternative strategy of taking a large difference to dilute the notch was not a success when tried.

    Nevertheless, most problems arise from actual notches in the tax laws. For example, in the federal law the child care credit is an integer percent of child care expenses, depending on AGI. In this case we have used a smooth interpolation between adjacent percentages even though the tax code prescribes a step function. For the intended purpose of TAXSIM, a little smoothing is a good thing. Especially at the state level some credits are just a fixed amount for taxpayers with income less than X. In that case the range for an smoothing isn't obvious and we have not done any.

    Sophisticated users may observe that since notches are part of the law, our strategems bias the results towards lower marginal rates. This is true, but we judge the reduction in variance to be worthwhile.

    We are very interested in other solutions to this problem, and suggestions are welcome.

    Since the federal and state tax liabilities may depend upon each other, the calculations are iterated, with the calculated state tax entered on the federal form as a (potential) deduction and the federal tax similarly placed in the state calculation. (Yes, we know that in law it is only lagged taxes that matter, but that is less interesting for our purposes). A sales tax deduction is available from 2002 on where it exceeds the state income tax. This is taken from regressions based onIRS publication 600. For tax years after 2016, the 2016 coefficients are used (with an allowance for expected inflation). Refundable credits appear as negative liabilities.

    In many cases the marginal rate of tax taken from schedule X, Y or Z of the form 1040 correctly characterizes the tax wedge. But for many taxpayers, their effective marginal rate is affected by a phase-outs other special provision of the tax code. The following claw-backs may affect the marginal rates calculated here:

    1. Deduction Phaseout
    2. Exemption phaseout 1991+
    3. Child Tax Credit
    4. Child Care Credit
    5. Earned Income Credit
    6. Alternative Minimum Tax
    7. Exemption Surtax 1988-1996
    8. Unemployment Insurance
    9. Maximum Tax on Earned Income
    10. General Tax Credit
    11. SSTB clawback

    The marginal rate on "wage income" is an earnings weighted average of the rates on the primary and secondary earners, or equal weights if both are non-workers. The estimate of FICA tax includes both employer and employee portions, and ignores the favorable treatment of self-employment income.

    If only a single case is uploaded, intermediate calculations are shown for the base case, and after adding a dollar to income. Also, the analytic effect of each of these clawbacks on the marginal rate for the primary earner is itemized. (This calculation doesn't change if you asked for a different marginal rate - it is always the primary earner). If multiple cases are uploaded, the finite difference is only a penny, which is more effective at avoiding notches.

    Sometimes anomalies have arisen from defects in our FORTRAN code, these have been corrected where we have found them or they have been pointed out to us.

    The 9 columns of results returned by default are:

    • v1 = taxsimid = Case ID
    • v2 = year = Year
    • v3 = state = State
    • v4 = fiitax = Federal income tax liability including capital gains rates, surtaxes, AMT and refundable and non-refundable credits.
    • v5 = siitax = State income tax liability
    • v6 = fica = FICA (OADSI and HI, sum of employee AND employer)
    • v7 = frate = federal marginal rate
    • v8 = srate = state marginal rate
    • v9 = ficar = FICA rate

      Marginal rates are with respect to wage income unless another rate is requested. If detailed intermediate results are requested, the following 32 columns of data are added:

    • v10 = Federal AGI
    • v11 = UI in AGI
    • v12 = Social Security in AGI
    • v13 = Zero Bracket Amount
    • v14 = Personal Exemptions
    • v15 = Exemption Phaseout
    • v16 = Deduction Phaseout
    • v17 = Itemized Deductions Allowed (Zero for non-itemizers)
    • v18 = Federal Taxable Income
    • v19 = Tax on Taxable Income (no special capital gains rates)
    • v20 = Exemption Surtax
    • v21 = General Tax Credit
    • v22 = Child Tax Credit (as adjusted)
    • v23 = Additional Child Tax Credit (refundable)
    • v24 = Child Care Credit
    • v25 = Earned Income Credit (total federal)
    • v26 = Income for the Alternative Minimum Tax
    • v27 = AMT Liability after credit for regular tax and other allowed credits.
    • v28 = Federal Income Tax Before Credits (includes special treatment of Capital gains, exemption surtax (1988-1996) and 15% rate phaseout (1988-1990) but not AMT)
    • v29 = FICA

      The next 11 columns are zeroed if no state is specified:

    • v30 = State Household Income (imputation for property tax credit)
    • v31 = State Rent Expense (imputation for property tax credit)
    • v32 = State AGI
    • v33 = State Exemption amount
    • v34 = State Standard Deduction
    • v35 = State Itemized Deductions
    • v36 = State Taxable Income
    • v37 = State Property Tax Credit
    • v38 = State Child Care Credit
    • v39 = State EIC
    • v40 = State Total Credits
    • v41 = State Bracket Rate
    • v42 = Earned Self-Employment Income for FICA
    • v43 = Medicare Tax on Unearned Income
    • v44 = Medicare Tax on Earned Income
    • v45 = CARES act Recovery Rebates

    The state tax calculators are more comprehensive than the list of variables above would imply.

    In the case of the marginal rate on wage income husbands and wives will have different tax rates if the secondary earner deduction is in effect, or if one is above the social security taxable maximum and the other is not.

    Bug Reporting

    If you suspect any case has been calculated incorrectly, please extract that case (or a exemplar, if there are many cases) and run it in individual taxpayer mode above. Examine the output to see if it suggests why the result is a surprise, but if you are still of the opinion that TAXSIM got it wrong, please set the case ID (variable 1) to "-1" and email the output web page to me with a statement of what you think is wrong. I will get back to you within a couple of days with an explanation or a fix. It is important that you not send large files or attachments. Just send an email with a few cases, the TAXSIM response and the reason you believe the response to be in error.

    We do answer all mail, and we do follow up on queries, but it is important to abide by the guidelines in the previous paragraph. An email message with the statement that "TAXSIM is broken", or even "state x is broken for feature y" will be returned with a request for an example in Internet TAXSIM format as described above. Comments about aggregates not matching public totals are not useful - you need to send an example of a specific return that is off. Once we get that, we will compare our results with hand generated results done from a tax form and any problem will soon be resolved. Comments from users have led to significant improvements in the program, and are almost always resolved within 48 hours.

    Some users have expressed concern about our ability to process large files, but files up to one million cases are not a problem. Larger files should probably be broken up. Anytime you are getting timed out, please divide your file into small pieces.

    Confidentiality

    Users of the AHEAD and HRS are reminded that they are not permitted to send state identifiers to us. If such users need state tax calculations they should set the state id to "-1", in which case the server will return 51 records for each record received, one for each possible state. You can then pick our the appropriate result on your authorized computer. Don't laugh - it works.

    Random Notes

    Married folk do not file separate returns in the US, except in unusual circumstances. There is a tax penalty compared to joint filing in almost all cases.

    Negative taxes and negative marginal rates are due to refundable tax credits, such as the Earned Income Credit (EIC) and the Additional Chlld Tax Credit.

    The FICA estimate includes both employee and employer tax.

    The CARES act recovery rebates use 2020 income in the calculation of the clawback and are calculated only in 2020.

    For more information about TAXSIM see:

    Feenberg, Daniel Richard, and Elizabeth Coutts, An Introduction to the TAXSIM Model, Journal of Policy Analysis and Management vol 12 no 1, Winter 1993, pages 189-194.

    This paper and this URL (http://www.nber.org/taxsim/) should be cited if any results from TAXSIM are circulated or published. If you intend to make any serious scholarly (or other) use of Internet TAXSIM you should speak with me about your project on the telephone. I am at 617-588-0343 and can offer advice etc. Don't think I am overwhelmed by calls and won't want to talk with you - I am interested in what people are doing with this tool. Sometimes I can create specialized versions for particular projects.

    Daniel Feenberg
    NBER
    1050 Mass Ave.
    Cambridge MA 02138
    617-588-0343
    feenberg@nber.org

    Date last modified: July 29, 2019 Taxsim home page