Taxable income is always lower than gross income since the U. To calculate taxable income, you begin by making certain adjustments from gross income to arrive at adjusted gross income AGI. Once you have calculated adjusted gross income, you can subtract any deductions for which you qualify either itemized or standard to arrive at taxable income. Note that there are no longer personal exemptions at the federal level.
Prior to , taxpayers could claim a personal exemption, which lowered taxable income. The new tax plan signed by President Trump in late eliminated the personal exemption, though. Deductions are somewhat more complicated. Many taxpayers claim the standard deduction, which varies depending on filing status, as shown in the table below.
Some taxpayers, however, may choose to itemize their deductions. This means subtracting certain eligible expenses and expenditures.
Possible deductions include those for student loan interest payments, contributions to an IRA, moving expenses and health-insurance contributions for self-employed persons.
The most common itemized deductions also include:. If the standard deduction is larger than the sum of your itemized deductions as it is for many taxpayers , you'll receive the standard deduction.
Once you have subtracted deductions from your adjusted gross income, you have your taxable income. If your taxable income is zero, that means you do not owe any income tax. Unlike adjustments and deductions, which apply to your income, tax credits apply to your tax liability, which means the amount of tax that you owe.
Tax credits are only awarded in certain circumstances, however. By contrast, nonrefundable tax credits can reduce your liability no lower than zero. The list below describes the most common federal income tax credits. There are numerous other credits, including credits for the installation of energy-efficient equipment, a credit for foreign taxes paid and a credit for health insurance payments in some situations.
Whether or not you get a tax refund depends on the amount of taxes you paid during the year. This is because they were withheld from your paycheck. However, it also depends on your tax liability and whether or not you received any refundable tax credits.
When you file your tax return, if the amount of taxes you owe your tax liability is less than the amount that was withheld from your paycheck during the course of the year, you will receive a refund for the difference. This is the most common reason people receive a tax refund. If you paid no taxes during the year and owe no taxes, but are eligible for one or more refundable tax credits, you will also receive a refund equal to the refundable amount of the credits. For starters, you should still file your taxes on time.
Otherwise, you will also have to pay a fee for filing late. The agency may be able to offer you a few payment options to help you pay off your bill.
For example, the IRS may offer a short-term extension or temporarily delay collection. You may also have the option to pay your remaining bill over multiple installments. You will likely still pay any interest charges on overdue balances, but in some cases, the IRS may even waive penalties or fees. Again, you should call the agency at the number above to discuss your options.
As you pay your tax bill, another thing to consider is using a tax-filing service that lets you pay your taxes by credit card. That way you can at least get valuable credit card rewards and points when you pay your bill. Double check that any rewards you earn are worth that extra cost, though. The cheapest way to pay a tax bill is still via a check or via IRS Direct Pay, which allows you to pay your bill directly from a savings or checking account.
All major tax filing services will provide you with instructions for both of these payment options. Many states, as well as some cities and counties, have their own income taxes. These are collected in addition to the federal income tax.
States that have a state income tax require that you file a separate state tax return, as they have their own rules. For more information about these these financial calculators please visit: Dinkytown. Information and interactive calculators are made available to you as self-help tools for your independent use and are not intended to provide investment advice.
We cannot and do not guarantee their applicability or accuracy in regards to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues. Here is a list of our partners. Estimate how much you'll owe in federal taxes, using your income, deductions and credits — all in just a few steps.
The United States taxes income progressively, meaning that how much you make will place you within one of seven federal tax brackets :. Which bracket you land in depends on your filing status: single, married filing jointly or filing separately, and head of household.
Choosing the right filing status can have a big effect on how your tax bill is calculated. Deciding how to take your deductions — that is, how much to subtract from your adjusted gross income, thus reducing your taxable income — can make a huge difference in your tax bill.
The standard deduction is a flat reduction in your adjusted gross income, the amount determined by Congress and meant to keep up with inflation. People who itemize tend to do so because their deductions add up to more than the standard deduction, saving them money. This means effort, but it might also mean savings. Both reduce your tax bill, but in different ways. Tax credits directly reduce the amount of tax you owe, dollar for dollar.
Tax deductions, on the other hand, reduce how much of your income is subject to taxes. Deductions lower your taxable income by the percentage of your highest federal income tax bracket. Estimating a tax bill starts with estimating taxable income.
In a nutshell, to estimate taxable income, we take gross income and subtract tax deductions. Then we apply the appropriate tax bracket based on income and filing status to calculate tax liability.
Tax credits and taxes already withheld from your paychecks might cover that bill for the year. If not, you may need to pay the rest at tax time. The United States has a progressive tax system, meaning people with higher taxable incomes pay higher federal income tax rates.
Here are the current tax brackets. You can sign up for a payment plan on the IRS website. There are several to choose from, and they can provide peace of mind. We have you covered. These NerdWallet articles can point you toward:. Hidden IRS phone numbers to call for help.
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