How Your Tax is Calculated – United States
US federal income tax is calculated progressively using marginal rates. Tax is withheld from paychecks throughout the year and reconciled when you file your annual return. State income taxes (where applicable) are calculated separately.
How Your Tax is Calculated
US federal income tax is calculated progressively using marginal rates. Tax is withheld from paychecks throughout the year and reconciled when you file your annual return. State income taxes (where applicable) are calculated separately.
Calculate Gross Income
Sum all income sources: wages (W-2), freelance/self-employment (1099), interest, dividends, capital gains, rental income, retirement distributions, and other income. This is your total gross income.
Calculate Adjusted Gross Income (AGI)
Subtract above-the-line deductions from gross income: 401(k), IRA, and HSA contributions, student loan interest, self-employment tax deduction, health insurance premiums for self-employed. AGI determines eligibility for many credits and deductions.
Subtract Standard or Itemized Deduction
Choose the greater of standard deduction ($16,100 single / $32,200 joint) or total itemized deductions (SALT, mortgage interest, charity, medical expenses). This gives your taxable income.
Apply Federal Tax Brackets
Tax calculated progressively: 10% on first $12,400; 12% on $12,401–$50,400; 22% on $50,401–$105,700; 24% on $105,701–$197,300; 32% on $197,301–$258,600; 35% on $258,601–$640,600; 37% above $640,600 (single filer rates).
Subtract Tax Credits
Apply tax credits to reduce tax owed: Child Tax Credit, EITC, education credits, etc. Credits are more valuable than deductions - they reduce your tax bill dollar-for-dollar. Refundable credits can result in a refund even if you owe no tax.
Add FICA Taxes
Social Security (6.2% up to $184,500) and Medicare (1.45% + 0.9% surtax above $200K) are calculated separately from income tax. Total FICA: 7.65% for most employees. These are withheld from each paycheck.
Calculate Net Pay
Gross salary minus federal income tax, FICA taxes, and state/local income taxes (if applicable) equals your take-home pay. Compare total withholding to actual tax owed - difference is your refund or amount due.
Example Calculation ($75,000 annual salary, single filer)
This example shows federal taxes only. State income tax (0-13.3% depending on state) would further reduce take-home pay. Does not include potential tax credits. 401(k) contribution reduces taxable income but also reduces take-home pay.
Calculate Your Tax in United States
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