Federal Income Tax Calculator

The Income in America is taxed by the federal government, most state governments, as well as many local governments. Since the federal income tax system is continuous, the tax rate increases when the income increases. The Marginal tax rate may range from 10% to 37%.

What is the Federal Income Tax?

The Federal Income Tax is the largest source of revenue for the U.S. government, administered by the Internal Revenue Service (IRS). Almost every working American needs to file a tax return annually with the IRS.

Additionally, a lot of people pay taxes for the entire year as payroll taxes that are withheld from their paychecks. The U.S. calculates income taxes depending on the tax rates, ranging from 10% to 37%. By claiming deductions and credits, taxpayers can reduce their tax burden and the tax amount they are liable to pay.

Federal Income Tax: W-2 Employees

Workers who get W-2 tax forms from their employers are called W-2 employees. The employers withhold a certain amount from the employee's earnings to pay for taxes. These forms report the annual salary paid during a particular tax year and the payroll taxes that were withheld.

The taxes include Social Security tax, income tax, medicare tax, and other state income taxes that offer benefits to a W-2 employee. The Federal Insurance Contribution Act (FICA) taxes paid for Social Security and Medicare programs are split between the employer and the employee.

The due rate period for FICA is at 15.3% of an employee's wage, but this is divided in half between the employer and the employee.

Federal Income Tax: 1099 Employees

Independent contractors, also referred to as 1099 employees, differ from W-2 employees in that no federal tax is withheld from their payments. Therefore, they are accountable for their own federal payroll taxes, commonly known as self-employment tax.

Both 1099 contractors and W-2 employees are required to pay FICA taxes for Social Security and Medicare. However, unlike W-2 employees who share the combined FICA tax rate of 15.3% with their employers, 1099 workers must cover the entire amount themselves.

The IRS (Internal Revenue Service) requires employers to send 1099 forms to any worker who earns more than $600 in a tax year. f you want a better understanding of how taxes fit into your overall financial goals, consider consulting a financial advisor.

Calculating the Federal Income Tax Rate

The United States has a progressive income tax system, which means higher tax rates apply to higher income levels. These are referred to as "marginal tax rates," and they only apply to income within a specific range, which is known as a bracket.

Income within each bracket is taxed at the corresponding rate. The table below shows the tax brackets for the federal income tax, and also reflects the rates for the 2024 tax year, which is due in April 2025.

2024 Federal Income Tax Brackets

2025 Federal Income Tax Brackets

The tax brackets vary for various filing statuses, including single, married, or head of household. Married individuals have the option to choose to file either separately or jointly. Although joint filing often proves beneficial, there are situations when filing separately may be more advantageous in certain situations.

Based on the rates mentioned in the table above, a single filer earning $50,000 would have a top marginal tax rate of 22%. However, this rate doesn't apply to the entire $50,000; instead, the first $11,600 of taxable income incurs a 10% rate, and the next $35,550 is taxed at 12%, and the final $2,850 is taxed at 22% falling in the third bracket.

Consequently, this hypothetical earner owes $6,053, resulting in an effective tax of approximately 12.1%.

Tax Withholding Estimator: Calculating Taxable Income Through Exemptions and Deductions

Federal tax rates apply only to taxable income, which is different than total income, otherwise referred to as gross income. Taxable income is always lower than gross income since the U.S. determines taxable income after certain allowable deductions are made from gross income.

To calculate taxable income, one first computes adjusted gross income (AGI) by making certain adjustments to gross income. Once done, taxpayers can further subtract eligible deductions (either itemized or standard) to derive taxable income.

It is essential to note that personal exemptions are no longer available at the federal level since the tax reform enacted in late 2017 eliminated them. Before 2018, taxpayers were allowed to claim a personal exemption, which lowered taxable income.

Deductions are complicated; most taxpayers opt for the standard deduction, which varies based on filing status, as shown in the table below:

2024-2025 Federal Standard Deductions

However, some taxpayers may choose to itemize their deductions instead, which necessitates 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 individuals.

Common itemized deductions include:

• Deduction for state and local taxes paid: The SALT deduction allows taxpayers to deduct up to $10,000 for state and local property taxes, in addition to their state and local income or sales taxes.
• Deduction for mortgage interest paid: It applies to interest paid on mortgages of up to two homes (limited to $1 million in debt for homes purchased after the 15th of December, 2017, and has been lowered to the first $750,000 of the mortgage.
• Deductions for charitable contributions and for medical expenses exceeding 7.5% of AGI.

Remember, most taxpayers don't itemize their deductions. You receive the standard deduction if it exceeds your total itemized deductions.

After subtracting applicable deductions from your adjusted gross income (AGI), the result is your taxable income. If that amount is zero, you don't owe any income tax.

How to Calculate Federal Tax Credits?

Tax credits differ from adjustments and deductions; they apply to your tax liability, meaning the tax amount that you are liable to pay.

For instance, if your calculated tax liability is $1,000, depending on your taxable income and your tax bracket, and if you qualify for a tax credit of $200, your liability reduces to $800, which means that's the amount you owe to the federal government.

Certain criteria must be met to receive a tax credit. Refundable credits can provide payments even if you don't owe any income tax, while non-refundable tax credits only liability to zero, but not lower than that. Some common federal income tax credits include:

• The adoption credit is a non-refundable credit akin to certain expenses regarding a child adoption.
• The Earned Income Tax Credit, a refundable credit for low-income taxpayers. With a maximum amount of $7,830 for those with three or more children for 2024 (rising to $8,046 for tax year 2025), or lower amounts for taxpayers with two, one, or no children.
• The Child and Dependant Care Credit, a non-refundable credit given for childcare expenses incurred while working or looking for work, of up to $3,000 for one child or $6,000 for two or more children.
• The American Opportunity Tax Credit is a partially refundable credit of nearly $2,500 every year for enrollment fees, tuition, course materials, and any other eligible expenses for your first four years of post-secondary education.

There are several other credits, such as credits for installing energy-efficient equipment, for foreign taxes paid, and a credit for health insurance payments in certain circumstances.

Tax Refund Calculation

Your eligibility of you getting a tax credit depends on the amount of taxes you paid during the year, as it was withheld from your paycheck. However, it will also depend on your tax liability and the fact if you have received any refundable tax credits.

While filing your tax return, if your tax liability (the amount of tax you are liable to pay) is lower than the withheld amount from your paycheck over the year, you will get a refund for the difference. This is the most common reason why an individual receives a tax refund.

If you did not pay any taxes throughout the year and do not owe any taxes, but qualify for one or more refundable tax credits, you will receive a refund equal to the amount of those credits.

Paying Your Taxes

If you are not receiving a tax refund and instead have a tax bill due on tax day, there are ways to ease the burden. First and foremost, ensure that you file your taxes on time; otherwise, you will incur a late filing fee.

If you think you cannot pay your entire tax bill, try to pay as much as you can and reach out to the IRS. The agency may provide various payment options to help you manage your outstanding bill. For instance, the IRS might allow a short-term extension or offer a temporary delay in collection.

You may also have the choice to pay your remaining balance in multiple installments. While you will likely still pay any interest charges on overdue balances, the IRS may sometimes waive penalties or fees. It is advisable to contact the agency for further discussion about your options.

As you settle your tax bill, consider using a tax-filing service that allows credit card payments. This way, you can earn valuable credit card rewards and points while paying your bill. The IRS has authorized three payment processors: PayUSAtax, Pay1040, and ACI Payments Inc. to accept tax payments made through credit card.

However, remember that each of these processors charges nearly 2% of your payment as a fee for credit card transactions. Make sure to check twice to evaluate whether the rewards you earn are worth this additional cost or not.

The most cost-effective way to pay your tax bill continues to be by check or through IRS Direct Pay, which enables you to pay directly from a checking or savings account. All major tax filing services will guide you regarding both of these payment options.

State and Local Income Taxes

Many states, along with certain cities and countries, impose their own income taxes, which are collected in addition to the federal income taxes. States that collect a state income tax require the filing of a separate state tax return, as each has its own rules and regulations.

Make Tax Calculations Easier With Savetaxs

Calculate your tax liability easily from the comfort of your home with Savetaxs Federal Income Tax Calculator. It is an easy-to-use tool that can be accessed by anyone. Our tool is available online, ensuring that you don't face any difficulties while computing your tax liabilities. Simply answer a few questions, and our tool will estimate the amount you might owe to the IRS.