Editor’s note: This calculator provides an estimate for tax year 2023, which is filed in 2024.
How does the tax calculator work?
The tax calculator gives you an estimate for the tax you owe on income you earned in 2023.
The next federal income tax filing deadline is Monday, April 15, 2024. (In tax parlance, that is the 2024 filing year and the 2023 tax year.)
How do tax brackets work?
When someone says they are in the 22 percent federal tax bracket, they don’t pay 22 percent of their entire income to Uncle Sam. Federal taxes are graduated: There are seven tax brackets in all.
A single taxpayer in the 22 percent tax bracket pays:
- 10 percent on income up to $11,000
- 12 percent on income between $11,000 and $44,725
- 22 percent for income above $44,725
According to the IRS tax tables, a person with taxable income of $50,000 would owe $6,623 in federal income taxes, or 13 percent of their taxable income.
You may notice we’re talking about taxable income above. Taxable income is what you’ve earned minus deductions and credits.
What are deductions?
Deductions are expenses that you’re allowed to deduct from your gross income, which is what you’ll find in box 1 of your W-2 form. (If you’re self-employed, your taxable income is all the money you’ve received for doing that thing you do.) You also owe income taxes on certain other income, such as interest from bank accounts, which is reported on Form 1099-INT, as well as dividends and capital gains, which are also reported on Form 1099.
Most people take the standard deduction, which is available to all taxpayers. Single taxpayers can deduct $13,850 from their gross income, up from $12,950 the previous year. A person with $63,850 in gross income, for example, can reduce their taxable income to $50,000. The standard deduction for couples filing jointly will rise to $27,700 in 2023, up from $25,900 the prior year.
How do I know if I should take the standard deduction or itemized deduction?
You should figure out your itemized deductions before you take your standard deduction. The tax law lets you deduct a myriad of expenses, the most common of which are mortgage interest and medical expenses. If you have a honking big mortgage or big medical bills, it may be worthwhile to itemize your deductions.
A few deductions are called above-the-line deductions, which means you can take those deductions even if you take the standard deduction or your itemized deductions. These include up to $500 in teacher expenses, contributions to health savings accounts, part of your self-employment tax, health insurance premiums, alimony paid and contributions to traditional individual retirement accounts (IRAs).
What are tax credits?
They’re great, that’s what they are. A tax deduction lowers your taxable income, which lowers your tax bill. A tax credit reduces your tax bill dollar for dollar. If you owe $600 in taxes and have a $500 tax credit, your tax liability falls to $100. Normally, you can only take a credit for as much as you owe. If you have a $500 credit and a $300 tax bill, you can only reduce your bill to zero.
But there are a few wonderful exceptions to that rule. Refundable tax credits, such as the Earned Income Tax Credit (EITC), can not only reduce your tax bill but turn a bill into a refund. Say you have a $600 tax bill. A $700 refundable tax credit would turn your $600 bill into a $100 tax refund.