Federal income tax is a tax levied by the United States government on the annual earnings of individuals, corporations, trusts, and other legal entities. The tax is calculated based on the taxable income, which includes wages, salaries, bonuses, commissions, capital gains, and other forms of income.
The U.S. federal income tax system is progressive, meaning that tax rates increase as income increases. Taxpayers fall into different tax brackets, each with its corresponding rate. These rates and brackets can change yearly based on new tax laws and inflation adjustments.
Every year, taxpayers must file a federal income tax return to report their income, deductions, and credits to the Internal Revenue Service (IRS). The most common form used by individuals is Form 1040. Filing can be done electronically (e-filing) or by mail. The deadline for filing federal income tax returns is typically April 15th, unless extended due to holidays or other circumstances.
Deductions and credits are essential aspects of the federal income tax system. Deductions reduce the amount of income that is subject to tax, while credits reduce the total tax owed. Common deductions include mortgage interest, state and local taxes, and charitable contributions. Popular credits include the Earned Income Tax Credit (EITC), Child Tax Credit, and education credits.
Employers usually withhold federal income tax from employees' paychecks and send it directly to the IRS. This withholding is based on the employee's W-4 form, which indicates their tax situation to the employer. Self-employed individuals and those with significant non-wage income might need to make estimated tax payments quarterly to avoid penaltie
Calculating your income tax can be straightforward with these steps:
Determine Your Gross Income: Include wages, salaries, bonuses, interest, dividends, business income, and other earnings.
Subtract Adjustments to Income: Deduct contributions to traditional IRAs, student loan interest, and other above-the-line deductions to get your Adjusted Gross Income (AGI).
Subtract Deductions: Choose either the standard deduction or itemized deductions (mortgage interest, state and local taxes, medical expenses, charitable contributions). Subtract this from your AGI to get your taxable income.
Apply the Tax Rates: Use the IRS tax brackets for your filing status to calculate your tax liability on your taxable income.
Subtract Tax Credits: Reduce your tax owed with eligible credits like the Earned Income Tax Credit (EITC) or Child Tax Credit.
Account for Withholding and Estimated Payments: Subtract any federal income tax withheld from your paycheck and any estimated tax payments you made.
Determine Your Refund or Amount Owed: If your total payments exceed your tax liability, you’ll receive a refund. If they are less, you’ll owe the difference.
The Internal Revenue Service (IRS) adjusts federal income tax brackets annually to account for inflation. For the 2024 tax year, the tax brackets are as follows:
For Single Filers:
10%: Up to $11,600
12%: Over $11,600 to $47,150
22%: Over $47,150 to $100,525
24%: Over $100,525 to $191,950
32%: Over $191,950 to $243,725
35%: Over $243,725 to $609,350
37%: Over $609,350
For Married Individuals Filing Joint Returns:
10%: Up to $23,200
12%: Over $23,200 to $94,300
22%: Over $94,300 to $201,050
24%: Over $201,050 to $383,900
32%: Over $383,900 to $487,450
35%: Over $487,450 to $731,200
37%: Over $731,200
For Heads of Households:
10%: Up to $16,550
12%: Over $16,550 to $63,100
22%: Over $63,100 to $100,500
24%: Over $100,500 to $191,950
32%: Over $191,950 to $243,700
35%: Over $243,700 to $609,350
37%: Over $609,350
Standard Deductions for 2024:
Single Filers: $14,600
Married Filing Jointly: $29,200
Heads of Household: $21,900
