Mailbag: Error in Your Calculation?

Dear Moneysplain,
The last article mentioned that investment income up to $96,700 can be taxed at 0%, but the family with $100,000 of investment income paid $0 in federal tax. Shouldn’t they have paid tax on $3,300 of their income? Was there an error in your calculation?

— Drew

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Thanks for the question, Drew.

That family paid no tax because tax is calculated on taxable income, not gross income (which we covered in this article: Deductions and Credits).

In 2025, the standard deduction for a married couple is $31,500. That reduces their taxable income from $100,000 to $68,500.

Since $68,500 is below the $96,700 threshold for the 0% long-term capital gains rate, all of their income is taxed at 0%.

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In fact, they could earn significantly more and still pay no federal tax.

Assuming no other income, they could have up to $157,533 in long-term investment gains and still owe $0.

Here’s why:

Taxable income:
$157,533 − $31,500 = $126,033

The first $96,700 is taxed at 0%.

The remaining $29,333 is taxed at 15%:
$29,333 × 15% = $4,400

So their total tax is $4,400.

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But this family has two young children.

Each qualifies for a $2,200 child tax credit, for a total of $4,400.

That credit fully offsets their tax, so they owe $0.

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The 0% rate for long-term investment gains has only been around since 2008, but anyone can make use of it.

We covered different income types and how each is taxed in this article: Income Types.