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Our experts answer your tax questions and write unbiased product reviews (here’s how we rate products for tax). In some cases, we receive commissions from our partners. However, our opinions are our own.
Personal Finance Insider’s Federal Income Tax Calculator will estimate how much you owe the IRS or get back as a refund when you file your 2022 tax returns. Our estimates are based on information provided about your application status, income, retirement benefits, withholdings, deductions, and dependents.
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How to use the tax calculator
Here’s what you need to use the calculator to estimate your income tax refund or claim:
- personal information: Your application status and age.
- income: Your total income for the tax year and how much you contributed to your 401(k) or traditional IRA. (Note: I’ve included these deductions because they are generic. You may be eligible to deduct other items such as student loan interest or half of your self-employment tax when you prepare your tax return. Ultimately, it reduces your taxable income).
- dependents: The number of dependents you claim. (Note: dependents are considered children under the age of 17 who qualify for the child tax credit).
- deduction: This field is pre-populated with the standard deduction amount when you select the application status. Enter the amount of deductible items, including mortgage interest, medical expenses, etc., if the total is large.
- payment: If you were an employee, check your last payslip for the year to see how much of your income was withheld for income tax purposes and enter that figure in this field. If you have multiple jobs, add up the amount of tax withheld by each employer. If you are self-employed, add up your estimated quarterly payments.
In addition to estimating your refund or outstanding amount, this calculator shows your effective tax rate, or the percentage of your income that you pay in taxes.
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How a tax calculator can help
Our tax calculator, like any other tax calculator, can only estimate your federal tax liability. You’ll need to complete your tax return to get an accurate figure.
However, using a tax calculator before you sit down and tackle your taxes has some advantages.
- Estimate your refund or tax amount. By entering basic information such as annual income, tax return status, and deductions, you can check whether you have underpaid or overpaid taxes throughout the year, and budget accordingly to claim or refund.
- Decide if you need professional help. If your tax bill is higher than expected or your refund is lower than expected, consider talking to a tax professional to find out how you can change your results next year.
- Determine if the amount deducted from your salary is correct. If you have been charged a large amount of tax, you may need to reconsider your W-4. Ideally, the amount of tax your employer withholds from your paycheck is as close as possible to the amount you actually owe. However, if you can get a large refund, you can direct your employer to withhold more from your paycheck for income tax purposes.
- Estimate your effective tax rate. By calculating your tax liability, you can find out what percentage of your gross income your federal income tax will be.
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How federal income tax is calculated
The United States operates a progressive income tax system. Rather than all income being taxed at the same rate, it is divided into chunks called tax brackets, with the highest earner being taxed at rates ranging from 10% up to 37%.
This method may seem unnecessarily complicated. But it is more beneficial for low-income taxpayers who end up paying a smaller percentage of their total income in taxes than for those who earn more.
Calculating your federal tax liability is a multi-step process that begins by adding up all your income for a year from work, investments, retirement accounts, and other sources.
From there, you can choose “cross the line” deductions, such as eligible retirement plan contributions or interest paid on student loans, to determine your Adjusted Gross Income (AGI).
You can then lower your AGI by taking standard deductions or itemizing your deductions. The standard deduction amount is an amount set according to the application status. Most people would be better off with the standard deduction as it is more than the sum of the itemized deductions.
Finally, we come to taxable income. This is the amount to apply to the tax jurisdiction to calculate your federal tax liability. You can claim a tax credit to further reduce your bill or get a refund. If this sounds like a chore, that’s what tax calculators are for.
6 tips to lower your tax bill
1. Adjust withholding or quarterly payments
Employees are required to complete a new W-4 at least once a year. You will need to complete more frequently if your application status or dependent status changes. More money withheld from your paycheck in a year means you’re more likely to cover your debts and won’t have to make extra payments before the tax deadline. A self-employed person must pay her income tax in four installments to her IRS. Usually, when filing an annual return, a larger payment means a smaller outstanding bill (or refund).
2. Take advantage of tax credits
Tax credits don’t put you into lower taxes. Instead, it is applied directly to your tax bill, which is very beneficial. For example, the 2022 Child Tax Credit is fully refundable and is worth $2,000 for each dependent under the age of 16. Let’s say you make $75,000 a year and your girlfriend has two children. This could save her $4,000 in taxes. If the amount owed falls below zero, you will receive the remaining credit as a refund. Other popular credits include the earned income tax deduction and the American opportunity deduction.
3. Contribution to pre-tax account
Money you contribute to your 401(k), traditional IRA, and health savings account is deducted from your pre-tax paycheck. Every dollar you save reduces your taxable income.
4. Watch out for marginal tax rates
The marginal tax rate relates to the tax bracket in which the last dollar of income falls. If you’re nearing the top of a tax bracket, you can defer income from your investment or retirement account to the next year to avoid moving to the next tax rate and experiencing a higher top tax rate.
5. Recovery of capital loss
Capital gains — net gains from the sale of investments such as stocks — are reported as income on your tax returns (unless they are in tax deferral accounts). Check your investments to see if you can sell your holdings at a loss in a year that you know will report a lot of capital gains. This loss can be used to offset capital gains . Excess capital losses can offset your regular income by up to $3,000 annually.
6. Claim a business deduction if you are self-employed
Working on your own can be expensive. However, office supplies, vehicles, home office, travel, and inventory costs can all be deducted from your business income. The result is lower net income and lower tax rates.
Many of these strategies are recommended to be used well in advance of Tax Day. Check your status at the beginning of the year to give yourself enough time to contribute to your deferred tax account or reorganize your income to lower your tax bill.
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