Internet TAXSIM Version 8.2 Home Page

Internet TAXSIM

Version 8.0

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 not released.

There is Stata interface to TAXSIM allowing tax calculations to be made without leaving the Stata environment. The calculations themselves are done here at the NBER, using the tax calculator described below. More information is available from within Stata via the commands:

. net from http://www.nber.org/stata . net describe taxsim8

There is also documentation for a raw TCP/IP interface using Netcat. This makes possible lower level access to the tax calculator for users integrating TAXSIM into other statistical packages or automated systems.

Version 8.1 introduces

Version 8.0 introduces:

Further changes will be noted in a change log .

Upload a 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 Don't bother
Show detailed intermediate calculations: Off On Labeled
Return either a URL on our server a live page.


OR... Calculate liabilities for one taxpayer (fill every box)

Marginal Rates with respect to: Other Income Wage Income Taxpayer Earnings Spouse Earning Long Term Gains Other deductions Mortgage Interest Don't bother
1. Case ID (must be numeric)
2. Tax year (4 digits between 1960 and 2013, but state must be zero if year is before 1977 or after 2006. We don't have code for state laws before 1977.) Indexed tax parameters are inflated by X 2.5/year after 2006.
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. Marital Status (1. single 2. joint 3. head of household 8. Dependent taxpayer )
5. Dependent Exemptions (including children of all ages, but see #19 below)
6. Number of taxpayers over 65 years of age.
7. Wage and salary income of Taxpayer (include self-employment).
8. Wage and salary income of Spouse (include self-employment).
9. Dividend income (corporate dividends only for 2003 on).
10. Other property income, including interest, rent, alimony, fellowships non-corporate dividends and other income or loss not otherwise enumerated here. Adjustments such as Keogh and IRA can be entered here as negative income.(+/-)
11. Taxable Pensions
12. Gross Social Security Income
13. Other non-taxable transfer Income such as welfare, municipal bond interest, and child support that would affect eligibility for state property tax rebates but would not be taxable at the federal level.
14. Rent Paid (used only for calculating state property tax rebates)
15. Property and other taxes paid (except state income or post-2003 formula derived sales tax, which TAXSIM calculates).
16. Itemized deductions other than mortgage,state income tax and local property tax. If you have medical expenses remember to only include the excess over 3%,5% or 7,5% of AGI (for years 60-82, 83-86 and 87+). These are regarded as preferences for the AMT.
17. Child care expenses.
18. Unemployment compensation received.
19. Number of dependents under age 17 (for child credit, not more than item 5).
20. Mortgage Interest and other deductions not a preference for the AMT.
21. Sort Term Capital Gains or losses. (+/-)
22. Long Term Capital Gains or losses. (+/-)

Return either a URL on our server a live page.

Instructions for preparing data for TAXSIM.

If you have many cases, you can prepare a 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.

Each line of your file should have 22 values separated by spaces or commas - one value for each of the 22 fields shown above in the "Individual taxpayer" section.

If you only need a calculation for one taxpayer you can just fill in the blank box beside each of the 22 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.

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 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, you can put it all in one category. 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 deductions, all adjustments, esoteric tax preferences, separate filing etc. 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.

Here is a sample entry for a single parent of one child in Idaho with only labor income, a $1000 short term capital loss and $2000 in child care expenses. Notice that no missing value indicator is used - zero amounts are coded as zero.:

12345 1989 13 3 1 0 30000 0 0 0 0 0 0 0 0 0 2000 0 1 0 -1000 0

Sample input and output files are are available to allow users to make a quick test of the functioning of the server. To run the test right click on the sample file link to download the 14 case test file to your PC. Then submit it back to our server using the file selection box above. Compare the values returned with the cannonical output file stored on the server. If they are the same, the server has passed a simple test.

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. If one line is short of values, the next will be read to make up the set of 22, but 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 files of any kind can not be read. Before uploading your file please check for the following common errors:

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

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 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 2006, the 2006 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

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 ten cents, 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 returned columns of results include:

  1. Case ID
  2. Year
  3. State
  4. Federal income tax liability
  5. State income tax liability
  6. FICA (OADSI and HI, employee and employer)
  7. Effective federal marginal rate
  8. Effective state marginal rate
  9. FICA rate

    If detailed intermediate results are requested, the following are added:

  10. Federal AGI
  11. UI in AGI
  12. Social Security in AGI
  13. Zero Bracket Amount
  14. Personal Exemptions
  15. Exemption Phaseout
  16. Deduction Phaseout
  17. Deductions Allowed (Zero for non-itemizers)
  18. Federal Taxable Income
  19. Federal Regular Tax
  20. Exemption Surtax
  21. General Tax Credit
  22. Child Tax Credit (as adjusted)
  23. Additional Child Tax Credit (refundable)
  24. Child Care Credit
  25. Earned Income Credit
  26. Income for the Alternative Minimum Tax
  27. AMT Liability (addition to regular tax)
  28. Federal Income Tax After Credits
  29. FICA

    The following are zero if no state is specified

  30. State Household Income
  31. State Rent Payments
  32. State AGI
  33. State Exemption amount
  34. State Standard Deduction
  35. State Itemized Deductions
  36. State Taxable Income
  37. State Property Tax Credit
  38. State Child Care Credit
  39. State EIC
  40. State Total Credits
  41. State Bracket Rate

The state tax cacalculators 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. 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. 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 200,000 cases are not a problem. Larger files should probably be broken up and run in the evening. Anytime you are getting timed out, please wait several hours and try again, as the time-outs are a sign that something is overloaded. Starting in mid-2005 a number of users have complained that even medium sized (5,000 records) datasets are timing out. We believe this is a browser timeout problem, and have an alternative interface, that does however call for some additional computer knowledge.

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. Don't laugh - it works.

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: January 2nd, 2006