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Overview of Federal Taxes

Income in America is taxed by the federal government, most state governments and many local governments. The federal income tax system is progressive, so the rate of taxation increases as income increases. Marginal tax rates range from 10% to 37%. Retired? Use our Retirement Income Tax Calculator.

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Your Income Taxes Breakdown

Tax Type Marginal 
Tax Rate
Effective 
Tax Rate
2018 
Taxes*
Federal
FICA
State
Local
Total Income Taxes
Income After Taxes
Retirement Contributions
Take-Home Pay

* These are the taxes owed for the 2018 - 2019 filing season.

Changes to Your Federal Income
Taxes Under the 2018 Tax Reform

  • Your marginal federal income tax rate
  • Your effective federal income tax rate
  • Your federal income taxes

Total Estimated 2018 Tax Burden

Income Tax $
Sales Tax $
Fuel Tax $
Property Tax$
Total Estimated Tax Burden $
Percent of income to taxes = %
$
  • Our Tax Expert

    Jennifer Mansfield, CPA Tax

    Jennifer Mansfield, CPA, JD/LLM-Tax, is a Certified Public Accountant with more than 30 years of experience providing tax advice. SmartAsset’s tax expert has a degree in Accounting and Business/Management from the University of Wyoming, as well as both a Masters in Tax Laws and a Juris Doctorate from Georgetown University Law Center. Jennifer has mostly worked in public accounting firms, including Ernst & Young and Deloitte. She is passionate about helping provide people and businesses with valuable accounting and tax advice to allow them to prosper financially. Jennifer lives in Arizona and was recently named to the Greater Tucson Leadership Program.

    ...read more
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The Federal Income Tax

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 and most 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. Below, we’ll take a closer look at the most important IRS tax rules to help you understand how your taxes are calculated.

Calculating Income Tax Rate

The United States has a progressive income tax. This means there are higher tax rates for higher income levels. These are called “marginal tax rates” – they do not apply to total income, but only to the income within a specific range.

These ranges are called 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. This table reflects the rates for the 2018 tax year, which are the taxes you pay in early 2019. This table also includes all of the changes from the new plan that President Trump and congressional Republicans passed in 2018.

2018 - 2019 Income Tax Brackets

Single Filers
Taxable IncomeRate
$0 - $9,52510.0%
$9,525 - $38,70012.0%
$38,700 - $82,50022.0%
$82,500 - $157,50024.0%
$157,500 - $200,00032.0%
$200,000 - $500,00035.0%
$500,000+37.0%
Married, Filing Jointly
Taxable IncomeRate
$0 - $19,05010.0%
$19,050 - $77,40012.0%
$77,400 - $165,00022.0%
$165,000 - $315,00024.0%
$315,000 - $400,00032.0%
$400,000 - $600,00035.0%
$600,000+37.0%
Married, Filing Separately
Taxable IncomeRate
$0 - $9,52510.0%
$9,525 - $38,70012.0%
$38,700 - $82,50022.0%
$82,500 - $157,50024.0%
$157,500 - $200,00032.0%
$200,000 - $300,00035.0%
$300,000+37.0%
Head of Household
Taxable IncomeRate
$0 - $13,60010.0%
$13,600 - $51,80012.0%
$51,800 - $82,50022.0%
$82,500 - $157,50024.0%
$157,500 - $200,00032.0%
$200,000 - $500,00035.0%
$500,000+37.0%

You’ll note that the brackets vary depending on whether you are single, married or the head of a 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 $9,525 of taxable income would be 10%, then 12% on the next $29,175, then 22% on the final $11,300 falling in that third tax 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 $6,939.50, an effective tax rate of 13.9%.

Calculating Taxable Income Using Exemptions and Deductions

Of course, calculating how much you owe in taxes is not quite that simple. For starters, federal tax rates apply only to taxable income. This is different than your total income (also called 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 for the 2018 tax year, there are no longer personal exemptions. Prior to 2018, taxpayers could claim a personal exemption ($4,050 in 2017), which lowered taxable income. The new tax plan signed by President Trump in late 2017 eliminated the personal exemption.

Deductions are somewhat more complicated. Many taxpayers claim the standard deduction, which varies depending on filing status, as shown in the table below. Note that the new tax plan has increased the size of the standard deduction to nearly double its 2017 amount.

Standard Deductions (Updated December 2019)

Filing StatusStandard Deduction Amount
Single Filers$12,000
Married, Filing Jointly$24,000
Married, Filing Separately$12,000
Head of Household$18,000

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 on up to two homes, and a total of $1,000,000 in debt can be subtracted.

  • Deduction for charitable contributions.

  • Deduction for medical expenses that exceed 7.5% of AGI. (Note that the income threshold was 10% until the new plan changed it to 7.5%. The new plan also applied that lower threshold retroactively to apply to the 2017 tax year.)

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 receive the standard deduction. Because the new tax plan doubled the size of the standard deduction, even fewer can expect to itemize deduction for the 2018 tax year.

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. You would only owe $800.

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 credit can be up to $6,431 per year for taxpayers with three or more children, or lower amounts for taxpayers with two, one or no children.

  • The Child and Dependent Care Credit is a nonrefundable credit of up to $3,000 (for one child) or $6,000 (for two or more) 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 Credit is a partially refundable credit of up to $2,500 per year for enrollment fees, tuition and course materials for the 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 (because they were withheld from your paycheck), 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 at 1-800-829-1040. 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 Official Payments. However, it’s important to keep in mind that all three processors charge fees of about 2% of your payment for credit card payments. If you had a bill of $100, a 2% fee would mean you pay an extra $2. Double check that any rewards you will earn are worth that extra cost.

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 tax, which is collected in addition to the federal income tax. States that do have a state income tax require that you file a separate state tax return and have their own rules. If you are curious about a particular state’s tax system and rules, visit one of our state tax pages.

Photo credits: ©iStock.com/Veni, ©iStock.com/Pgiam, ©iStock.com/ShaneKato

Places with the Lowest Tax Burden

SmartAsset’s interactive map highlights the counties with the lowest tax burden. Scroll over any county in the state to learn about taxes in that specific area.

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Rank County Income Tax Sales Tax Property Tax Fuel Tax

Methodology

Where you live can have a big impact on both which types of taxes you have to pay each year and how much money you spend on them. SmartAsset calculated the amount of money a specific person would pay in income, sales, property and fuel taxes in each county in the country and ranked the lowest to highest tax burden.

To better compare income tax burdens across counties, we used the national median household income. We then applied relevant deductions and exemptions before calculating federal, state and local income taxes.

In order to determine sales tax burden we estimated that 35% of take-home (after-tax) pay is spent on taxable goods. We multiplied the average sales tax rate for a county by the household income less income tax. This product is then multiplied by 35% to estimate the sales tax paid.

For property taxes, we compared the median property taxes paid in each county.

For fuel taxes, we first distributed statewide vehicle miles traveled down to the county level using the number of vehicles in each county. We then calculated the total number of licensed drivers within each county. The countywide miles were then distributed amongst the licensed drivers in the county, which gave us the miles driven per licensed driver. Using the nationwide average fuel economy, we calculated the average gallons of gas used per driver in each county and multiplied that by the fuel tax.

We then added the dollar amount for income, sales, property and fuel taxes to calculate a total tax burden. Finally, we created the Tax Burden Index in order to show how each county in the country compares to the county with the lowest tax burden (that is the county with a Tax Burden Index of 100).

Sources: US Census Bureau 2017 American Community Survey, Government Sources, Avalara, American Petroleum Institute, GasBuddy, UMTRI, Federal Highway Administration, SmartAsset