How Grantd Calculates Federal and State Income Tax

Grantd Tax Calculation Methodology

The Grantd tax engine follows the same sequential calculation process as the IRS Form 1040, applying current federal tax law at each step:

Step 1: Calculate Total Income

Grantd aggregates all income sources entered into the system:

Income Type	How It's Treated
W-2 Wages	Ordinary income taxed at marginal rates
RSU Vesting	Ordinary income (gross value at vest, currently shown pre-withholding)
NSO Exercise Spread	Ordinary income (FMV minus exercise price)
ISO Exercise	No regular tax impact; creates AMT adjustment
Capital Gains	Short-term (ordinary rates) or long-term (preferential rates)
Self-Employment Income	Subject to both income tax and self-employment tax
Other Income	Interest, dividends, rental income, etc.

Step 2: Apply Adjustments to Income

These "above-the-line" deductions reduce your Adjusted Gross Income (AGI):

HSA contributions
Traditional IRA/401(k) contributions (pre-tax)
Student loan interest deduction
Self-employment tax deduction (50% of SE tax)
Other qualified adjustments you've entered

AGI = Total Income - Adjustments

Step 3: Apply Deductions

Grantd automatically uses whichever deduction is greater:

Standard Deduction (amount varies by filing status and tax year)
Itemized Deductions (state/local taxes, mortgage interest, charitable contributions, etc.)

Note: See updated references under One Big Beautiful Bill Act.

Taxable Income = AGI - Deduction

Step 4: Calculate Regular Federal Income Tax

Grantd applies the current year's federal tax brackets to your taxable income:

Ordinary income is taxed at marginal rates (10%, 12%, 22%, 24%, 32%, 35%, 37%)
Long-term capital gains and qualified dividends are taxed at preferential rates (0%, 15%, 20%)
The calculation respects bracket thresholds based on your filing status

Step 5: Calculate Alternative Minimum Tax (AMT)

AMT is calculated in parallel using different rules:

Starts with regular taxable income
Adds back certain deductions and "preference items"
Key for equity comp: ISO exercise spread is added as an AMT adjustment
Applies AMT exemption (which phases out at higher incomes)
Taxes the result at 26% or 28% rates

Your federal tax is the HIGHER of regular tax or AMT.

The Grantd platform displays both calculations side-by-side so you can see when AMT applies and plan accordingly.

Step 6: Apply Tax Credits

Credits directly reduce your tax liability dollar-for-dollar:

Child Tax Credit / Additional Child Tax Credit
Education credits (American Opportunity, Lifetime Learning)
Energy credits
AMT credit carryforwards (from prior years)
Other credits you've entered

Step 7: Estimate State Income Tax

State tax is calculated based on:

The average state tax rate you enter in the baseline Tax Model
Applied to your total income (or AGI, depending on state methodology)

Step 8: Calculate FICA Taxes

FICA (Federal Insurance Contributions Act) taxes include:

Social Security Tax: 6.2% on wages up to $176,100 (2025 limit)
Medicare Tax: 1.45% on all wages, plus 0.9% Additional Medicare Tax on wages exceeding $200,000 (Single) or $250,000 (MFJ)

Grantd calculates FICA taxes separately from income tax, as FICA applies only to earned income (W-2 wages), not investment income or capital gains. Self-employment income is subject to both the employer and employee portions of FICA (15.3% total), with 50% deductible as an adjustment to income.

Transparency Within Complexity

What You Can See:

5-year federal tax projection (regular + AMT)
Total tax estimates (including state and FICA)
How income types flow through the system
Which years trigger AMT

What Happens Behind the Scenes:

Application of current tax brackets and phase-outs
AMT exemption calculations and phase-out rules
Interaction between various income types and credits
State tax estimation based on your input rate
FICA wage base limitations and additional Medicare tax thresholds