Federal, state, and local ladders
Tax is calculated one bracket slice at a time
The model starts from encoded 2026 federal schedules, with supported-state and selected-local schedules still at their 2025 published figures. It mechanically carries ordinary schedules into later plan years using the plan’s inflation assumption and the model’s configured rounding steps—even where a state may freeze its real thresholds. Separately encoded fixed items, including Social Security provisional-income bands, NIIT thresholds, and Additional Medicare thresholds, remain fixed.
Federal and state are separate
Each uses its own standard deduction, brackets, and taxable-income base. A stream excluded by a state can remain in the federal base without silently pushing the state calculation into a higher rate.
Filing status follows the household
One-person plans use single schedules. Two-person plans use joint schedules until a modeled death leaves a survivor: a survivor with a dependent child keeps the joint schedule for up to two qualifying-surviving-spouse years, and after that — or otherwise from the year after the death — the applicable years use single schedules.
What reaches each tax
The source of a dollar decides its treatment
Wages, pension, rent
Added to the federal and modeled state ordinary-income bases. Rent is netted first, the way Schedule E nets it: the mortgage interest, property tax, insurance, maintenance and dues attributable to the let share, and straight-line depreciation on the building over 27.5 years (39 for commercial).
A loss is passive under Section 469 — allowed against other income up to $25,000, phased out between $100,000 and $150,000 of modified AGI, and otherwise suspended until a profitable year or the sale. A profit gets the Section 199A 20% deduction against federal taxable income only, under its taxable-income ceiling.
Depreciation taken comes off the basis and returns at the sale as unrecaptured Section 1250 gain, taxed at ordinary rates capped at 25%.
Provisional-income formula
Half the benefit joins other income for the threshold test. The federally taxable share is capped at 85%; the model excludes it from state tax except in the states that really tax it — Montana in full, and Minnesota, Vermont, New Mexico, Rhode Island and Connecticut under each state's own income gate.
Cash without income tax
Adds to spendable cash but not to federal or state taxable income. The user chooses this treatment on the income stream.
Payroll tax
W-2 wages and self-employment income have payroll rules in addition to ordinary income tax. Pension, rent, and benefits do not.
Accounts and realized gains
Tax is attached to the asset’s tax character
Return compounds without annual income tax.
Gross withdrawal is ordinary income; an applicable early-distribution penalty is added.
Return compounds without annual income tax.
A workplace Roth withdrawal is modeled tax-free. Roth IRA contribution basis leaves first; early growth can be taxed and penalized.
Return compounds without annual income tax.
Withdrawals within the remaining qualified medical-cost pool leave tax-free. The pool includes modeled Medicare, IRMAA, declared medical spending, and eligible care costs, adjusted to avoid also reimbursing deductions. The rest is ordinary income, plus a 20% early charge before age 65.
Return compounds without annual income tax.
Choose spread, deadline, annual minimums with a deadline, or life-expectancy distributions. Deadline-based modes use the remaining years entered on the account. Inherited IRA money is ordinary income; inherited Roth money is tax-free; neither gets an early charge.
Modeled dividends are taxed in the year received and reinvested into basis.
A proportional share of the withdrawal above remaining basis is a long-term gain.
Interest is ordinary income each year.
Principal withdrawal is not taxed again.
Appreciation is unrealized; ownership costs remain annual cash flows.
Gain above modeled basis uses the $250k single / $500k joint federal exclusion, then gains and state rules.
Modeled long-term gains stack above ordinary taxable income, using the federal 0% / 15% / 20% ladder. The 3.8% net investment income tax is added where its unindexed MAGI threshold is exceeded. State gains are generally priced on the selected state’s ordinary-income ladder.
When the year does not pay for itself
The model raises the net amount the year needs
A $40,000 cash gap can require more than a $40,000 gross withdrawal. The engine prices the tax created by each potential source and grosses up the withdrawalso the amount left after modeled tax covers the gap, capped by what the account actually holds.
Accounts exposed to an early-withdrawal charge are held back while a cheaper eligible source remains, even if the penalized kind ranks earlier. If nothing cheaper remains—or the plan explicitly funds a purchase from it—the model uses it and adds the charge. Roth IRA contributions and HSA dollars within the remaining qualified medical-cost pool are treated as available without that charge.
Retirement rules that interrupt the plan
Required withdrawals come first; Medicare looks back
Required minimum distributions
For each owner’s eligible pre-tax accounts, RMDs begin at 73—or 75 for birth years 1960 and later. They ignore the selling order and enter ordinary-income treatment whether the cash is needed or not, subject to any modeled state retirement-income exemption.
The Uniform Lifetime divisor is the model’s IRS age-based distribution-period number; it generally gets smaller with age, which makes the required share larger.
Medicare and IRMAA
Base Part B and Part D premiums begin in the plan year a person turns 65, plus any supplemental premium entered. The IRMAA tier is selected from modified AGI two years earlier and charged per person enrolled that year.
For the first two plan years, supplied pre-plan MAGI is used when available. Otherwise the engine falls back to the earliest projected MAGI it knows rather than assuming no surcharge.
Medicare thresholds grow with plan inflation; modeled premiums grow at inflation plus the built-in healthcare drift. A modeled death changes both the number of enrollees and the filing-status ladder used for later surcharge years.
Known simplifications
Tax model limits
The federal return takes the larger of the standard deduction and itemizing each year — state and local income tax, the personal share of property tax and mortgage interest under the SALT and acquisition-debt caps, plus declared charitable giving and medical costs — and the alternative minimum tax runs beside the regular calculation on the whole year, re-opened by every sale, withdrawal and conversion the year makes rather than settled once on the paycheck.
Qualified charitable distributions route declared giving from an IRA from the plan year the owner turns 71 — the annual model’s reading of the 70½ rule. Thirty-one states and the District build an itemized figure of their own from the components their rules allow and compare it with their standard deduction; the rest stay on their headline rule.
Most credits, other above-the-line deductions, and carryforwards are not modeled.
Local income tax is modeled for the jurisdictions listed in the locality picker, on the base each one actually uses — wages only for the municipal wage taxes, the state’s own base for the county and city income taxes.
State retirement-income exemptions are modeled for the states that grant them: the full subtractions in Illinois, Mississippi, Pennsylvania and Iowa (each on its own age rule), and the per-person age-gated caps in eleven more, including Maryland’s and Maine’s reductions for Social Security received. Withdrawals, required minimums, scheduled distributions and Roth conversions all claim the shelter; a broad-base local tax follows its state’s.
Connecticut, Alabama, New Mexico and Wisconsin ride income-gated exclusions, capped at what each gate leaves. Non-resident rates, reciprocity and work-city credits, New Jersey’s per-return cap, Michigan’s phase-in, and cross-state allocation detail are outside the model.
Short-term gain lots, loss harvesting, and wash sales are not represented. Each brokerage account says how its dividends are taxed — qualified (the plan’s own split, all-qualified until it says otherwise), ordinary income, a flat rate of its own, or tax-free — and a bond coupon inside it follows the bond type instead; holding-period and per-fund qualified-dividend tests are not represented.
The ACA premium credit is modeled for marketplace years before 65 when the plan switches marketplace cover on, at the benchmark plan against the federal poverty line. Medicaid below that line, cost-sharing reductions, college-aid formulas, every Medicare exception, and other means-tested programs are not included.
Selling costs, improvement-basis records and depreciation recapture are taken as entered, not verified.
The home-sale exclusion applies the two-year ownership test to a house bought within the plan (a home already owned when the plan opens is presumed to qualify), and a house bought and sold inside one plan year is taxed as short-term gain. Which house the exclusion belongs to is read year by year, so a plan that sells one home and buys another excludes both sales, and the once-every-two-years limit is kept: a second sale within a year of an excluded one reaches no exclusion. The use test, the nonqualified-use fraction and the partial exclusion for an unforeseen move are not modeled.
Property tax assessment caps are applied at the state level; parcel taxes, special assessments, exemption filings, and county-specific caps or portability rules are not.
The model carries its rule snapshot — 2026 federal rules · 2025 state and local — forward mechanically. It does not predict legislation, sunset provisions, or administrative changes.