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Personal Finance Insider's federal income tax calculator estimates how much you may owe the IRS, or get back as a refund, when you file your 2022 tax return. Our estimates are based on information you provide about your filing status, income, retirement contributions, tax withholding, deductions, and dependents.
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How to use the tax calculator
Here's what you'll need to estimate your income tax refund or bill using our calculator:
- Personal info: Your filing status and age.
- Income: Your gross income for the tax year, as well as how much you contributed to a 401(k) or traditional IRA. (Note: We included these above-the-line deductions because they're common. 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).
- Dependents: How many dependents you claim. (Note: We considered dependents to be children 17 and under who qualify for the child tax credit).
- Deductions: This field will be pre-filled with the standard deduction after you select your filing status. If the total of your itemized deductions — this includes things like mortgage interest and medical expenses — is larger, enter that amount.
- 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 you had multiple jobs, add up how much each employer withheld for taxes. If you were self-employed, add up your quarterly estimated payments.
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.
How a tax calculator can help
Our tax calculator, like others, can only estimate your federal tax liability. To get the exact figure, you need to complete your tax return.
However, using a tax calculator before you sit down to tackle your taxes has several benefits:
- Estimate your refund or tax bill. 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.
- Decide if you need professional help. 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.
- Determine whether you have the correct amount withheld from your paycheck. If you wind up with a big tax bill, you may need to revisit your W-4. 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. However, if you enjoy getting a big refund, you can instruct your employer to withhold more of your paycheck for income taxes.
- Estimate your effective tax rate. Calculating your tax liability will allow you to figure out what overall percentage of your income is going to federal income taxes.
See Insider's picks for the best tax software for small business owners >>
How federal income taxes are calculated
The US operates a progressive income tax system. 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.
This method might seem unnecessarily complex. 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.
Calculating 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.
From 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.
Next, you can lower your AGI by either taking the standard deduction or itemizing your deductions. The standard deduction is a set amount for your filing status. Most people are better off taking the standard deduction because it's more than their total itemized deductions.
Finally, you've arrived at your taxable income. This is the amount you apply to the tax brackets to calculate your federal tax liability. You can claim tax credits to reduce your bill further, or even generate a refund. If this all sounds like a lot of legwork, that's what a tax calculator is for.
6 tips to lower your tax bill
1. Adjust your tax withholding or quarterly payments
Employees should fill out a new W-4 at least annually, and more often if their filing status or dependents situation changes. 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. Self-employed people have to send their own income taxes to the IRS in four installments — larger payments usually mean a smaller outstanding bill (or even a refund) when you file your annual return.
2. Take advantage of tax credits
Tax credits won't put you in a lower tax bracket. Instead, they apply directly to your tax bill, which can be hugely beneficial. For example, the child tax credit for 2022 is fully refundable and worth $2,000 for every dependent age 16 and younger. Say you earn $75,000 a year and claim two children. That can knock $4,000 off your tax bill. If the amount you owe drops below zero, you get the remaining credit as a refund. Other popular credits include the earned income tax credit and the American opportunity credit.
3. Contribute to pre-tax accounts
The money you contribute to 401(k)s, traditional IRAs, and health savings accounts is taken from your paycheck before taxes. Each dollar you save means less taxable income.
4. Mind your marginal tax rate
Your marginal tax rate relates to the tax bracket where your last dollar of income falls. If you're near the upper threshold of a tax bracket, deferring income from investments or retirement accounts to next year can keep you from graduating into the next bracket and experiencing a higher top tax rate.
5. Harvest capital losses
Capital gains — the net earnings from the sale of an investment, such as stocks — are reported as income on your tax return (except if it's in a tax-deferred retirement account). In a year when you know you'll be reporting a lot of capital gains, check your investments to see if you can sell any holdings at a loss. This loss can be used to offset your capital gains. If there are excess capital losses, you can offset your ordinary income by up to $3,000 per year.
6. Claim business deductions if you're self-employed
It can be expensive to work for yourself. But the cost of office supplies, vehicles, a home office, travel, and inventory can all be deducted from your business income. That results in a lower net profit, which puts you in a lower tax bracket.
It's best to utilize many of these strategies well before Tax Day. Look at your situation early in the year so there's plenty of time to contribute to tax-deferred accounts or reorganize your income to lower your tax bill.