🇺🇸 Federal Income Tax Calculator

Estimate your federal and state tax burden

Updated for 2023 tax year on Jul 18, 2023

Income tax calculators by state

United States federal income tax calculation

Benjamin Franklin once said: In this world nothing can be said to be certain, except death and taxes. The government of the USA subjects all residents and citizens to income taxes, including investments, overseas incomes, etc. Not reporting and paying taxes is tax evasion and a criminal offence.

The 12-month period for federal taxes begins on October 1st and ends on September 30th of the following year. For instance, the tax year 2023 starts on October 1st, 2022, and ends on September 30th, 2023. On the other hand, each state establishes its 12-month tax year. While some states follow the federal tax year, others begin on July 1st and end on June 30th.

Federal income tax is calculated based on a progressive system, where those earning more pay a higher percentage of their income in taxes. Some states also have a progressive system, while others have a single tax rate for all income levels. Additionally, eight states do not have an income tax, and one state (New Hampshire) does not have a wage income tax. Some counties, cities, and districts may also have a local income tax, but this is rare. To calculate income tax, you determine the taxable income by subtracting deductions and exemptions.

The Federal Insurance Contributions Act (FICA) constitutes the federal payroll tax, which comprises two separate taxes. Payroll taxes are only present in some states and are based on your taxable wage, as the name suggests.

How to calculate your income taxes

There are six key steps to determine your total income tax. The income tax calculator above follows the exact steps mentioned below.

Step 1 – Determine your filing status

There are four main filing statuses:

• Single
• Married, Filing Jointly or Widow(er)
• Married, Filing Separately
• Head of Household

Your marital status and whether you have any dependents will determine your filing status.

For example, if you are single and have a child, you should file as ‘Head of Household’.

Suppose you are married but preferred to file separately from your partner (highly inadvisable). In that case, you will file as ‘Married, Filing Separately’.

Refer to IRS to understand more.

Step 2 – Figure out your adjusted gross income

In this step, you must work out your adjusted gross income by removing retirement contributions from your total annual gross income. Contributions 401(k) and IRA are considered retirement contributions.

The formula is:
Gross income − Retirement contributions = Adjusted gross income

The more you contribute to your retirement funds, the lower your adjusted gross income will be, leading to lesser income tax. However, there is a limit on how much you can contribute to your 401(k) and IRA. 

The maximum employee 401(k) contribution limit for the tax year 2022 is $20,500. If you are age 50 or older, you can contribute an additional $6,500. For IRA contributions, the limit is $6,000 ($7,000 if you’re age 50 or older) for the tax year 2022.

Step 3 – Calculate federal/state taxable income

Now you have to calculate your taxable income to understand your tax liability. It would help if you worked out the taxable income for federal and state separately, as their formulas are slightly different. The key differences are:

1. Different standard deduction
2. Some states still have personal exemptions (after Tax Cuts and Jobs Act)

The formula for calculating federal taxable income is as follows:
Adjusted gross income − Standard/Itemized deductions = Federal taxable income

The procedure to derive the state taxable income is as follows:
Adjusted gross income − (Standard/Itemized deductions + Exemptions) = State taxable income

Step 4 – Federal/state/local tax liability

Like the previous step, you need to use the respective taxable income for federal and state. Local tax liability is based on state taxable income.

The formula to determine federal tax liability is as follows:
Federal taxable income × Federal tax rate = Federal tax liability

The formula to calculate state tax liability is as follows:
State taxable income × State tax rate = State tax liability

The formula to work out local tax liability is as follows:
State taxable income × Local tax rate = Local tax liability

Step 5 – FICA & state payroll tax liability

Payroll tax is based on the taxable wage (gross income) hence the name. Unless income tax, each payroll tax has a gross income ceiling. FICA consists of two taxes: Social Security and Medicare.

The formula to calculate federal/state payroll tax liability is:
Gross income × FICA/State payroll tax rate = FICA/State payroll tax liability

Step 6 – Add all taxes

The final step is subtracting all the tax liabilities from your gross income.

The formula is:
Federal tax liability + State tax liability + Local tax liability + FICA tax liability + State payroll tax liability = Total income taxes

Federal Insurance Contributions Act (FICA)

The two mandatory payroll taxes that make up the FICA tax are Social Security and Medicare, and employees and employers must contribute an equal amount to each tax. However, self-employed individuals are responsible for paying the full amount themselves.

Social Security

Medicare

Federal income tax brackets

The federal tax brackets differ every year as IRS adjusts them for inflation. For the latest on federal income tax brackets, refer to Tax Foundation.

Regards to state income tax brackets it varies from state to state. Some states have had the same rate for years, and some adjust their brackets every year.

Retirement contributions

There is an annual limit on how much you can contribute to your retirement funds.

The maximum employee 401(k) contribution limit for the tax year 2022 is $20,500 for those under 50 and $27,000 for those over 50 or older. For IRA contributions, the yearly limit is $6,000 ($7,000 if you’re age 50 or older) for the tax year 2022.

Standard deduction

You can use the standard deduction or itemize deductions in your income tax calculation. As a thumb of rule, if your itemized deductions are less than the standard deduction, it is wiser to claim the standard deduction amount.

For a list of itemizable deductions, refer to Dough Roller’s ultimate list.

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