The Federal Income Tax: How Are You Taxed?
The federal personal income tax that is administered by the Internal Revenue Service (IRS) is the largest source of revenue for the U.S. federal government. Nearly all working Americans are required to file a tax return with the IRS each year. In addition to this, most people pay taxes throughout the year in the form of payroll taxes that are withheld from their paychecks.
Income taxes in the U.S. are calculated based on tax rates that range from 10% to 37%. Taxpayers can lower their tax burden and the amount of taxes they owe by claiming deductions and credits.
Federal Income Tax: W-2 Employees
W-2 employees are workers that get W-2 tax forms from their employers. These forms report the annual salary paid during a specific tax year and the payroll taxes that were withheld.
This means that employers withhold money from employee earnings to pay for taxes. These taxes include Social Security tax, income tax, Medicare tax and other state income taxes that benefit W-2 employees.
Both employers and employees split the Federal Insurance Contribution Act (FICA) taxes that pay for Social Security and Medicare programs. The FICA rate due every pay period is 15.3% of an employee’s wages. However, this tax payment is divided in half between the employer and the employee.
Federal Income Tax: 1099 Employees
Independent contractors, unlike W-2 employees, will not have any federal tax deducted from their pay. This means that because they are not considered employees, they are responsible for their own federal payroll taxes (also known as self-employment tax).
Both 1099 workers and W-2 employees must pay FICA taxes for Social Security and Medicare. But, whereas W-2 employees split the combined FICA tax rate of 15.3% with their employers, 1099 workers are responsible for the entire amount.
The IRS mandates employers to send 1099 forms to workers who are paid more than $600 during a tax year.
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Calculating the Federal Income Tax Rate
The United States has a progressive income tax system. This means there are higher tax rates for higher income levels. These are called “marginal tax rates," meaning they do not apply to total income, but only to the income within a specific range. These ranges are referred to as brackets.
Income falling within a specific bracket is taxed at the rate for that bracket. The table below shows the tax brackets for the federal income tax, and it reflects the rates for the 2022 tax year, which are the taxes due in early 2023.
2022 - 2023 Income Tax Brackets
- Single Filers
- Married, Filing Jointly
- Married, Filing Separately
- Head of Household
|$0 - $10,275||10%|
|$10,275 - $41,775||12%|
|$41,775 - $89,075||22%|
|$89,075 - $170,050||24%|
|$215,950 - $539,900||35%|
|Married, Filing Jointly|
|$0 - $20,550||10%|
|$20,550 - $83,550||12%|
|$83,550 - $178,150||22%|
|$178,150 - $340,100||24%|
|$340,100 - $431,900||32%|
|$431,900 - $647,850||35%|
|Married, Filing Separately|
|$0 - $10,275||10%|
|$10,275 - $41,775||12%|
|$41,775 - $89,075||22%|
|$89,075 - $170,050||24%|
|$170,050 - $215,950||32%|
|$215,950 - $323,925||35%|
|Head of Household|
|$0 - $14,650||10%|
|$14,650 - $55,900||12%|
|$55,900 - $89,050||22%|
|$89,050 - $170,050||24%|
|$170,050 - $215,950||32%|
|$215,950 - $539,900||35%|
You’ll notice that the brackets vary depending on whether you are single, married or a head of household. These different categories are called filing statuses. Married persons can choose to file separately or jointly. While it often makes sense to file jointly, filing separately may be the better choice in certain situations.
Based on the rates in the table above, a single filer with an income of $50,000 would have a top marginal tax rate of 22%. However, that taxpayer would not pay that rate on all $50,000. The rate on the first $10,275 of taxable income would be 10%, then 12% on the next $31,500, then 22% on the final $8,225 falling in the third bracket. This is because marginal tax rates only apply to income that falls within that specific bracket. Based on these rates, this hypothetical $50,000 earner owes $6,617, which is an effective tax rate of about 13.2%.
Tax Withholding Estimator: Calculating Taxable Income Using Exemptions and Deductions
Federal tax rates apply only to taxable income. This is different than your total income, otherwise known as gross income. Taxable income is always lower than gross income since the U.S. allows taxpayers to deduct certain income from their gross income to determine taxable income.
To calculate taxable income, you begin by making certain adjustments from gross income to arrive at adjusted gross income (AGI). Once you have calculated adjusted gross income, you can subtract any deductions for which you qualify (either itemized or standard) to arrive at taxable income.
Note that there are no longer personal exemptions at the federal level. Prior to 2018, taxpayers could claim a personal exemption, which lowered taxable income. The tax plan signed in late 2017 eliminated the personal exemption, though.
Deductions are somewhat more complicated. Many taxpayers claim the standard deduction, which varies depending on filing status, as shown in the table below.
2022 - 2023 Federal Standard Deductions
|Filing Status||Standard Deduction Amount|
|Married, Filing Jointly||$25,900|
|Married, Filing Separately||$12,950|
|Head of Household||$19,400|
Some taxpayers, however, may choose to itemize their deductions. This means 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 persons. The most common itemized deductions also include:
- Deduction for state and local taxes paid: Also known as the SALT deduction, it allows taxpayers to deduct up to $10,000 of any state and local property taxes plus either their state and local income taxes or sales taxes.
- Deduction for mortgage interest paid: Interest paid on the mortgages of up to two homes, with it being limited to your first $1 million of debt. Homes purchased after Dec. 15, 2017 have this lowered to the first $750,000 of the mortgage.
- Deduction for charitable contributions
- Deduction for medical expenses that exceed 7.5% of AGI
Keep in mind that most taxpayers don’t itemize their deductions. If the standard deduction is larger than the sum of your itemized deductions (as it is for many taxpayers), you'll receive the standard deduction.
Once you have subtracted deductions from your adjusted gross income, you have your taxable income. If your taxable income is zero, that means you do not owe any income tax.
How to Calculate Federal Tax Credits
Unlike adjustments and deductions, which apply to your income, tax credits apply to your tax liability, which means the amount of tax that you owe.
For example, if you calculate that you have tax liability of $1,000 based on your taxable income and your tax bracket, and you are eligible for a tax credit of $200, that would reduce your liability to $800. In other words, you would only owe $800 to the federal government.
Tax credits are only awarded in certain circumstances, however. Some credits are refundable, which means you can receive payment for them even if you don’t owe any income tax. By contrast, nonrefundable tax credits can reduce your liability no lower than zero. The list below describes the most common federal income tax credits.
- The Earned Income Tax Credit is a refundable credit for taxpayers with income below a certain level. The 2021 credit can be up to $6,728 for taxpayers with three or more children ($6,935 for tax year 2022), or lower amounts for taxpayers with two, one or no children.
- The Child and Dependent Care Credit is a nonrefundable credit of up to $4,000 for one child ($3,000 in tax year 2022) or $8,000 for two or more children ($6,000 in tax year 2022) related to childcare expenses incurred while working or looking for work.
- The Adoption Credit is a nonrefundable credit equal to certain expenses related to the adoption of a child.
- The American Opportunity Tax Credit is a partially refundable credit of up to $2,500 per year for enrollment fees, tuition, course materials and other qualified expenses for your first four years of post-secondary education.
There are numerous other credits, including credits for the installation of energy-efficient equipment, a credit for foreign taxes paid and a credit for health insurance payments in some situations.
Calculating Your Tax Refund
Whether or not you get a tax refund depends on the amount of taxes you paid during the year. This is because they were withheld from your paycheck. However, it also depends on your tax liability and whether or not you received any refundable tax credits.
When you file your tax return, if the amount of taxes you owe (your tax liability) is less than the amount that was withheld from your paycheck during the course of the year, you will receive a refund for the difference. This is the most common reason people receive a tax refund.
If you paid no taxes during the year and owe no taxes, but are eligible for one or more refundable tax credits, you will also receive a refund equal to the refundable amount of the credits.
Paying Your Taxes
If you aren’t getting a tax refund and instead owe money come tax day, there may be a way to lessen the sting. For starters, you should still file your taxes on time. Otherwise, you will also have to pay a fee for filing late.
If you don’t think you can afford your full tax bill, then you should pay as much as you can and contact the IRS. The agency may be able to offer you a few payment options to help you pay off your bill. For example, the IRS may offer a short-term extension or temporarily delay collection. You may also have the option to pay your remaining bill over multiple installments. You will likely still pay any interest charges on overdue balances, but in some cases, the IRS may even waive penalties or fees. Again, you should call the agency at the number above to discuss your options.
As you pay your tax bill, another thing to consider is using a tax-filing service that lets you pay your taxes by credit card. That way you can at least get valuable credit card rewards and points when you pay your bill. The IRS has authorized three payment processors to collect tax payments by credit card: PayUSAtax, Pay1040 and ACI Payments, Inc. However, it’s important to keep in mind that all three processors charge fees of nearly 2% of your payment for credit card transactions. Double check that any rewards you earn are worth that extra cost, though.
The cheapest way to pay a tax bill is still via a check or via IRS Direct Pay, which allows you to pay your bill directly from a savings or checking account. All major tax filing services will provide you with instructions for both of these payment options.
State and Local Income Taxes
Many states, as well as some cities and counties, have their own income taxes. These are collected in addition to the federal income tax. States that have a state income tax require that you file a separate state tax return, as they have their own rules. If you're curious about a particular state’s tax system and rules, visit one of our state tax pages.
|Tax rate||Taxable income bracket||Taxes owed|
|10%||$0 to $22,000.||10% of taxable income.|
|12%||$22,001 to $89,450.||$2,200 plus 12% of the amount over $22,000.|
|22%||$89,451 to $190,750.||$10,294 plus 22% of the amount over $89,450.|
|24%||$190,751 to $364,200.||$32,580 plus 24% of the amount over $190,750.|
With federal tax brackets and rates, the tax rates themselves aren't changing. The same seven tax rates in effect for the 2022 tax year – 10%, 12%, 22%, 24%, 32%, 35%, and 37% – still apply for 2023.What are the IRS tax rates for 2023 vs 2022? ›
The standard deduction for single taxpayers and married individuals filing separately rises to $13,850 for 2023. That's up $900 from 2022's $12,950 standard deduction. For married couples filing jointly, for tax year 2023 the standard deduction climbs to $27,700. That's an $1,800 increase from 2022.What percentage of my paycheck is withheld for federal tax 2023? ›
In most cases, the federal payroll tax rate is about 15.3%, with the employee covering 7.65% and the employer covering 7.65%.Did the federal withholding change for 2023? ›
Broadly speaking, the 2023 tax brackets have increased by about 7% for all filing statuses. This is significantly higher than the roughly 3% and 1% increases enacted for 2022 and 2021, respectively.What will the standard deduction be for 2023? ›
|Filing Status||Standard Deduction 2023|
|Single; Married Filing Separately||$13,850|
|Married Filing Jointly & Surviving Spouses||$27,700|
|Head of Household||$20,800|
In a nutshell, to estimate taxable income, we take gross income and subtract tax deductions. What's left is taxable income. Then we apply the appropriate tax bracket (based on income and filing status) to calculate tax liability.Why is my tax return so low 2023? ›
The IRS previously forecast that refund checks were likely to be lower in 2023 due to the expiration of pandemic-era federal payment programs, including stimulus checks and child-related tax and credit programs.What percent is federal income tax? ›
The federal income tax rates remain unchanged for the 2022 and 2023 tax years are 10%, 12%, 22%, 24%, 32%, 35% and 37%. The income thresholds for each bracket, though, are adjusted slightly every year for inflation.Will tax refunds be bigger in 2023? ›
According to early IRS data, the average tax refund will be about 11% smaller in 2023 versus 2022, largely due to the end of pandemic-related tax credits and deductions.
Basically, if you're 65 or older, you have to file a tax return in 2022 if your gross income is $14,700 or higher. If you're married filing jointly and both 65 or older, that amount is $28,700. If you're married filing jointly and only one of you is 65 or older, that amount is $27,300.What are the federal tax brackets and standard deductions for 2023? ›
|Filing status||2023 standard deduction|
|Married, filing separately||$13,850.|
|Married, filing jointly; qualified widow/er||$27,700.|
|Head of household||$20,800.|
There are seven federal income tax rates in 2023: 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 37 percent.How to calculate federal income tax withholding using the percentage method? ›
Subtract the total tax percentage from 100 percent to determine the net tax percentage. For example, assume that your employee must pay 31 percent on a $10,000 bonus. The net tax percentage is 67.35 percent (100 - 32.65). Divide the employee's bonus amount by the net tax rate to determine the gross amount of the bonus.What are two commonly used methods to calculate federal income tax? ›
There are two main methods small businesses can use to calculate federal withholding tax: the wage bracket method and the percentage method.What is the standard deduction for 2023 over 65? ›
The IRS considers an individual to be 65 on the day before their 65th birthday. The standard deduction for those over age 65 in 2023 (filing tax year 2022) is $14,700 for singles, $27,300 for married filing jointly if only one partner is over 65 (or $28,700 if both are), and $21,150 for head of household.Will income tax be different for 2023? ›
Those rates—ranging from 10% to 37%—will remain the same in 2023. What's changing is the amount of income that gets taxed at each rate. For example, in 2023, an unmarried filer with taxable income of $95,000 will have a top rate of 22%, down from 24% in 2022.What is the average tax refund for a single person making $30000? ›
What is the average tax refund for a single person making $30,000? Based on our estimates using the 2017 tax brackets, a single person making $30,000 per year will get a refund of $1,556. This is based on the standard deduction of $6,350 and a standard $30,000 salary.Will tax returns be different in 2023? ›
Changes for 2023
When you file your taxes this year, you may have a lower refund amount, since some tax credits that were expanded and increased in 2021 will return to 2019 levels. The 2023 changes include amounts for the Child Tax Credit (CTC), Earned Income Tax Credit (EITC), and Child and Dependent Care Credit.
The IRS did not change the federal tax brackets for 2022 from what they were in 2021. There are still seven: 10%, 12%, 22%, 24%, 32%, 35%, and a top bracket of 37%. 1 However, the income thresholds for all tax brackets increased in 2022 to reflect the rise in inflation.
Inflation last year reached its highest level in the United States since 1981. As a result, the IRS announced the largest inflation adjustment for individual taxes in decades: 7.1 percent for tax year 2023.What are the tax changes for 2022? ›
After an inflation adjustment, the 2022 standard deduction increases to $12,950 for single filers and married couples filing separately and to $19,400 for single heads of household, who are generally unmarried with one or more dependents. For married couples filing jointly, the standard deduction rises to $25,900.