Hi I am just trying to figure out how my taxes are affected by increasing my 403b contributions...
If I make about $70K taxable a year and am currently contributing $7,500 to my 403B that means my taxable income is 62500.
-- I pay $15,625 in tax (lets put me at 25% tax to make it easy)
This is not how income taxes work. Presuming you're a single person who doesn't claim itemized deductions:
Gross income: $70,000
403(b) contribution -$ 7,500
Standard deduction -$ 6,300
Personal exemption -$ 4,000
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Taxable income $52,200Now, the tax is not 25% of this amount. You get to pay lower rates for whatever portion of your income falls into the lower brackets:
First $9,225 of income taxed at 10% $9,225 * 10% = $ 922.50
Up to $37,450 taxed at 15% ($37,450 - $9,225) * 15% = $4,233.75
Up to $90,750 taxed at 25% ($52,200 - $37,450) * 25% = $3,687.50
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Total tax $8,843.75Because you are well into the 25% bracket, an additional $10,000 of 403(b) contributions will result in $2,500 less tax owed. This does
not necessarily mean that your refund will be $2,500 larger. Your withholding per paycheck should go down when you increase your contributions. Your year-end refund shouldn't go up or down by very much at all. In fact, if you are getting a $2,500 refund every year you should adjust your withholding to have less taken out each paycheck. A tax refund means that you gave an interest-free loan to the government. Try to avoid that!