![]() Having more money withheld from your paycheck during the year means you're more likely to cover your liability and not owe extra on the tax deadline. Adjust your tax withholding or quarterly paymentsĮmployees should fill out a new W-4 at least annually, and more often if their filing status or dependents situation changes. Show Pros, Cons, and More chevron down icon An icon in the shape of an angle pointing down. If this all sounds like a lot of legwork, that's what a tax calculator is for. You can claim tax credits to reduce your bill further, or even generate a refund. This is the amount you apply to the tax brackets to calculate your federal tax liability. Most people are better off taking the standard deduction because it's more than their total itemized deductions.įinally, you've arrived at your taxable income. The standard deduction is a set amount for your filing status. Next, you can lower your AGI by either taking the standard deduction or itemizing your deductions. But it's beneficial to lower-income taxpayers, who end up paying a smaller portion of their total income toward taxes than those who earn more.Ĭalculating federal tax liability is a multi-step process that starts by adding up all your income for the year from jobs, investments, retirement accounts, and other sources.įrom there, you can take a selection of "above-the-line" deductions, such as contributions to a qualified retirement plan or the amount of interest you paid on a student loan, to arrive at your adjusted gross income, or AGI. This method might seem unnecessarily complex. ![]() Rather than all of your income being taxed at the same rate, it's divided into chunks - known as tax brackets - and taxed at rates from 10% to as much as 37% for the highest-income earners. The US operates a progressive income tax system. See Insider's picks for the best tax software for small business owners > How federal income taxes are calculated ![]() Calculating your tax liability will allow you to figure out what overall percentage of your income is going to federal income taxes. However, if you enjoy getting a big refund, you can instruct your employer to withhold more of your paycheck for income taxes. Ideally, the amount of money your employer withholds from each of your paychecks for taxes will be as close to what you actually owe as possible. If you wind up with a big tax bill, you may need to revisit your W-4. Determine whether you have the correct amount withheld from your paycheck.If your tax bill is larger or your refund is smaller than expected, consider consulting a tax professional to find out how to change the outcome for next year. By entering basic information about your annual income, filing status, and deductions, you can find out whether you underpaid or overpaid taxes throughout the year and prepare your budget accordingly for a bill or refund. However, using a tax calculator before you sit down to tackle your taxes has several benefits: To get the exact figure, you need to complete your tax return. Our tax calculator, like others, can only estimate your federal tax liability. In addition to estimating how much you'll get back as a refund, or how much you'll owe, the calculator shows your effective tax rate, or the percentage of your income you pay in taxes overall. If you were self-employed, add up your quarterly estimated payments. If you had multiple jobs, add up how much each employer withheld for taxes. Payments: If you were an employee, check your final pay stub of the year to see how much of your income was withheld for income taxes and enter that number in this field.If the total of your itemized deductions - this includes things like mortgage interest and medical expenses - is larger, enter that amount. Deductions: This field will be pre-filled with the standard deduction after you select your filing status.(Note: We considered dependents to be children 17 and under who qualify for the child tax credit). Dependents: How many dependents you claim.When you prepare your tax return, you might also qualify to write off other items, such as student-loan interest or half of your self-employment taxes, that will ultimately lower your taxable income). (Note: We included these above-the-line deductions because they're common. Income: Your gross income for the tax year, as well as how much you contributed to a 401(k) or traditional IRA.Personal info: Your filing status and age.Here's what you'll need to estimate your income tax refund or bill using our calculator: See Insider's picks for the best tax software > How to use the tax calculator
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