Income Tax Calculator
Before you do your taxes for this year, use our 1040 tax calculator to get a preliminary estimate of your taxes owed and your tax refund. This tax calculator is about the most thorough it could be, as it gives you the opportunity to enter nearly everything you would include on a real tax return.
But you aren’t required to enter everything in the calculator in order to see your results. Enter as much or as little information as you have available at the moment and get an idea of what to expect for the upcoming tax year.
Table of Contents
Overview of Federal Taxes
Federal income taxes charge a percentage tax based on the income of each individual and corporation. Since the tax calculator on this page concerns just individual taxes, we’ll set corporations aside.
The individual tax rates depend on how much income each person earns. In the US, those earning more money pay a higher share of that income in taxes. This is known as a progressive tax system, as opposed to a flat tax which would charge everyone the same percentage, or a regressive tax, which would charge the higher-income earners a lower percentage.
In the US, there are currently seven tax brackets, ranging from 10% up to 37%.
And for all seven brackets, the income range for each one varies depending on if you are filing taxes as a single individual, married filing jointly, married filing separately, or head of household.
For example, in 2022, a single person making between $41,775 and $89,075 would fall in the 22% tax bracket. But for a married couple filing their taxes together, they would reach the 22% tax bracket if their combined income was between $83,550 and $178,150.
The chart below shows all seven tax brackets as well as how the income ranges change depending on tax filing status.
The Federal Income Tax
Calculating your federal income taxes is more complicated than those simple tax bracket percentages seem to indicate, and our 1040 tax calculator incorporates all these complications into its methodology.
To compute your federal income tax requires knowing three things:
- The difference between marginal and absolute tax rates
- The role of FICA taxes
- How you earned your income and when it gets taxed
Let’s get into the details of how this works.
Calculating Income Tax Rate
To calculate your income tax rate, you must incorporate all three of the items listed above.
Marginal tax rates
The tax brackets are ‘marginal’ tax rates, not absolute tax rates. What does that mean? It means a single person making $80,000 doesn’t pay 22% of that in taxes. They would pay 10% on the first $10,275, 12% of everything from there up through $41,775, and then 22% of the rest.
The final amount is referred to as the ‘effective tax’, which expresses the actual amount in taxes paid. The effective tax rate will always be less than the marginal tax rate.
FICA taxes
FICA stands for Federal Insurance Contribution Act. This refers to Social Security and Medicare. Essentially, everyone pays the same tax rate for FICA, so this functions like a flat tax. That rate currently stands at 15.3%, and all that money goes to pay for Social Security and Medicare.
W-2, 1099, and Self-employment
There are others, but these represent the three most common ways of earning income.
A W-2 employee works at a typical job and receives a regular paycheck. When they get that check, a portion of their income has already been taken out to pay for their income and FICA taxes. When a W-2 employee files their taxes in April, part of the goal is to make sure the correct amount of taxes was withheld. If too much was taken out, they get a refund. If not enough was taken out, they pay a little more.
Most importantly, a W-2 employee pays only half the FICA tax, and their employer pays the other half.
A 1099 employee is often referred to as a contractor. This person does work for another company, but isn’t officially on their payroll. And when this person receives their paycheck, no taxes have been withheld, and they are thus responsible for all their income taxes, and for the full 15.3% FICA tax.
For this reason, a 1099 employee should set aside a portion of their income so they have enough to cover their tax bill. If they earn a lot of income in this manner, they should pay estimated quarterly taxes, rather than wait to do it all at once in April every year.
They are called 1099 employees because the companies they work for must send them a 1099 form, reporting their income earned from that company, if they earned over $600 in the year.
Self-employment is comparable to a 1099 employee, but this can also include owning your own business. So, your customers pay you money, and you now must pay taxes on that income. Again, you will need to pay the full amount of taxes as none has been withheld, as well as the full 15.3% FICA tax. That’s why this is often referred to as the self-employment tax.
Calculating Taxable Income Using Exemptions and Deductions
Further complicating the tax calculation process, no one pays taxes on the full amount of their income. You must also apply any deductions to your total income, and the tax rate you actually pay will apply only to your adjusted gross income, or AGI.
Everyone can claim what is known as the ‘standard deduction,’ and this lowers your taxable income by this amount. Here’s the table showing the standard deduction for each filing status:
For example, a married couple filing jointly who made $200,000 won’t be taxed on that full amount. At a minimum, they will subtract $25,900 from that amount, leaving $174,100.
If you scroll back up and look at the tax brackets table, you’ll notice that at $200,000, this couple would have been in the 24% tax bracket. But now, after taking the standard deduction, they are in the 22% tax bracket.
This basic concept explains why taxes become so complicated. Because in addition to the standard deduction, you can claim a whole host of other tax credits and deductions, and all of these serve to lower your taxable income. For many tax filers, the goal is to find enough credits and deductions to get themselves into a lower tax bracket.
Our 1040 tax calculator allows you to input all sorts of credits and deductions so you can see what it takes to lower your taxes owed to various amounts.
How to Calculate Federal Tax Credits
As stated, there are many other deductions and credits you can claim to reduce your tax burden. But, if those credits and deductions add up to less than the standard deduction, then you would just use that standard figure. If your credits add up to more than the standard deduction, then you use your ‘itemized’ total.
Other common tax credits and deductions people claim include:
- Student loan interest
- State and local taxes paid including sales tax
- Mortgage interest paid
- Charitable donations
- Medical expenses exceeding 7.5% of your AGI
- Child tax credit
- Renewable energy tax credits
- Earned income tax credit for people making below certain amounts
- Business expenses – especially common for self-employment taxes
- Pre-tax retirement account contributions
- HSA contributions
There are many, many other types of credits and deductions. Some, like pre-tax retirement contributions, automatically lower your taxable income. Others, like charitable donations and mortgage interest, have to be added up and compared to the standard deduction to see which number is larger.
Our 1040 tax calculator allows you to input all this information if you have it available. The more you have with you, the more accurately the calculator can predict your tax refund and taxes owed.
Calculating Your Tax Refund
So how do you calculate your tax refund?
You simply take the amount of taxes you paid throughout the year and compare it to the amount of taxes you actually owe, once your income has been adjusted and all credits and deductions have been accounted for.
If you paid more taxes than you owed that year, you get a refund. If you paid fewer taxes than you owed, you have to pay the difference.
For self-employed and 1099 individuals in particular, they have to be careful to set aside money during the year to pay estimated quarterly taxes. Because unlike W-2 employees, these other workers haven’t paid any taxes directly from their paychecks. So they will certainly not get a tax refund if they haven’t paid any quarterly taxes throughout the year. But, if they pay quarterly taxes and can claim a variety of deductions, they can receive a tax refund just like a W-2 employee.
Paying Your Taxes
If you do end up owing additional taxes, the simplest plan is to pay it when you file your taxes. If you’re filing them yourself, write a check or use IRS Direct Pay on their website, which will accept payments straight from your bank account. This method charges no fees.
If you’re using a tax filing service, they will offer to manage your payment process for you.
If your tax bill is larger than you expected, you may be able to pay it in installments rather than all at once, but in this case, the IRS may charge you interest.
State and Local Income Taxes
Everything you’ve read so far applies only to federal taxes for the United States. But many individual states also charge income taxes. Some cities and counties do as well.
In that situation, you will need to file a separate tax return for your state and locality. Our 1040 tax calculator doesn’t include that, because every state and locality has its own rules and rates.
But, you can usually deduct your state and local taxes from your federal taxes to lower your taxable income, and this reduces the pain at least a bit.
Places with the Lowest Tax Burden
Where this really starts to hurt is when you move up the tax brackets. Someone paying the highest 37% tax bracket who also lives in a high tax state such as California may end up paying over 50% of their income in taxes.
For this reason, some people get fed up and decide to move to a place that charges lower taxes.
Here’s an article examining the states with no income tax if you want to learn more.
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We enjoy working with high net worth and ultra-high net worth investors and families who want what we call financial serenity – the feeling that comes when you know your finances and the lifestyle you desire have been secured for life, and that you don’t have to do any of the work to manage and maintain it because you hired a trusted advisor to take care of everything.
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