🇺🇸 Federal Income Tax Calculator

Calculate your federal, state & local income taxes

Updated for 2023 tax year on Jan 01, 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. All residents and citizens in the USA are subjected to income taxes. This includes investments, oversea incomes, etc. If you don’t report and pay your tax properly, it is considered tax evasion and it is a criminal offence.

A federal tax year is a 12-months period beginning October 01 and ending September 30 the following year. For example, the tax year 2022 will starts on Oct 01 2021, and end on Sep 30 2022. The state tax year is also a 12-months period but each state sets their own tax year. Some states follow the federal tax year, some states start on July 01 and end on Jun 30.

Federal income tax is progressive. This means higher earners will have a higher marginal tax rate while lower earners have a lower marginal tax rate. Some states have progressive income tax rates and some states tax at a single rate on all income levels. 8 states don’t have income tax and 1 state (New Hampshire) has no wage income tax. Some counties/cities/districts also have a local income tax but it is not as common. Income tax calculation rests on the taxable income, which is worked out after deductions and exemptions.

Besides income tax, you also have to calculate the payroll taxes. The federal payroll tax is called Federal Insurance Contributions Act (FICA) and it is made up of two separate taxes. Only some states have payroll taxes. As the name implies, this tax is based on your taxable wage.

How to calculate your income taxes

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

Step 1 – Determine your filing status

There are 4 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’.

If you are married but preferred to file separately from your partner (highly inadvisable), then 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 need to 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 and it leads 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 tax year 2022 is $20,500. If you are age 50 or older, you can contribute an additional $6,500. For IRA contribution, the limit is $6,000 ($7,000 if you’re age 50 or older) for tax year 2022.

Step 3 – Calculate federal/state taxable income

Now you have to calculate your taxable income in order to understand your tax liability. You need to work 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:
Adjusted gross income − Standard/Itemized deductions = Federal taxable income

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

Step 4 – Federal/state/local tax liability

Similar to 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:
Federal taxable income × Federal tax rate = Federal tax liability

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

The formula to work out local tax liability is:
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 to subtract 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)

FICA tax is made up of two mandatory payroll taxes: Social Security and Medicare. Each tax is equally split between employees and employers. Self-employed needs to pay the full amount.

Social Security

Medicare

Federal income tax brackets

The federal tax brackets are different every year as IRS adjusts it 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 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 tax year 2022 is $20,500 for those under 50 and $27,000 for others aged over 50 or older. For IRA contributions, the yearly limit is $6,000 ($7,000 if you’re age 50 or older) for tax year 2022.

Standard deduction

You can either 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 smarter to just claim the standard deduction amount.

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

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