The U.S. federal income tax system, managed by the Internal Revenue Service (IRS), represents a significant portion of the U.S. government’s revenue. Most employed individuals in the United States are obligated to file a tax return with the IRS annually. Furthermore, taxes are typically paid continuously throughout the year through payroll withholdings.
Tax rates in the U.S. range from 10% to 37%. However, taxpayers can reduce their tax liability through various deductions and credits.
Federal Income Tax for W-2 Employees
W-2 employees receive a W-2 form from their employers, summarizing their annual earnings and total taxes withheld.
Employers withhold funds from employee paychecks for taxes. These withholdings cover Social Security tax, federal income tax, Medicare tax, and state income taxes.
Both employers and employees contribute to Federal Insurance Contribution Act (FICA) taxes, which fund Social Security and Medicare. The combined FICA tax rate is 15.3% of an employee’s wages, split evenly between the employer and the employee.
Federal Income Tax for 1099 Employees
Unlike W-2 employees, independent contractors (1099 employees) do not have federal taxes automatically deducted from their payments. As they are not classified as employees, they are responsible for paying their own federal payroll taxes, also known as self-employment tax.
Both 1099 workers and W-2 employees are subject to FICA taxes for Social Security and Medicare. However, while W-2 employees split the 15.3% FICA tax with their employers, 1099 workers are responsible for the entire amount.
The IRS requires businesses to issue 1099 forms to contractors who receive more than $600 in a tax year.
Calculating Your Federal Income Tax Rate: Understanding Tax Brackets
The U.S. employs a progressive income tax system. This means higher income levels are taxed at higher rates. These rates are known as “marginal tax rates,” and they only apply to the portion of income that falls within a specific income range, called a tax bracket.
Income within each bracket is taxed at that bracket’s corresponding rate. The following table outlines the federal income tax brackets for the 2024 tax year (taxes due in April 2025):
2024 – 2025 Income Tax Brackets
| Single Filers |
|---|
| Taxable Income |
| $0 – $11,600 |
| $11,600 – $47,150 |
| $47,150 – $100,525 |
| $100,525 – $191,950 |
| $191,950 – $243,725 |
| $243,725 – $609,350 |
| $609,350+ |
| Married, Filing Jointly |
|---|
| Taxable Income |
| $0 – $23,200 |
| $23,200 – $94,300 |
| $94,300 – $201,050 |
| $201,050 – $383,900 |
| $383,900 – $487,450 |
| $487,450 – $731,200 |
| $731,200+ |
| Married, Filing Separately |
|---|
| Taxable Income |
| $0 – $11,600 |
| $11,600 – $47,150 |
| $47,150 – $100,525 |
| $100,525 – $191,950 |
| $191,950 – $243,725 |
| $243,725 – $365,600 |
| $365,600+ |
| Head of Household |
|---|
| Taxable Income |
| $0 – $16,550 |
| $16,550 – $63,100 |
| $63,100 – $100,500 |
| $100,500 – $191,950 |
| $191,950 – $243,700 |
| $243,700 – $609,350 |
| $609,350+ |
Tax brackets are determined by your filing status: single, married filing jointly, married filing separately, or head of household. While married couples often file jointly, filing separately may be advantageous in some circumstances.
For example, a single filer earning $50,000 falls into the 22% marginal tax bracket. However, this individual won’t pay 22% on their entire income. The first $11,600 of taxable income is taxed at 10%, the next $35,550 at 12%, and only the remaining $2,850 is taxed at 22%. This results in a total tax liability of $6,053, an effective tax rate of approximately 12.1%. This illustrates how marginal tax rates apply only to the income within each specific bracket. Use a How Much Will I Owe In Taxes Calculator to quickly determine your tax obligations.
Tax Withholding Estimator: Calculating Taxable Income Through Deductions
Federal tax rates are applied to taxable income, which is different from your gross income. Taxable income is typically lower because taxpayers can deduct certain amounts from their gross income.
To calculate your taxable income, you first adjust your gross income to arrive at your adjusted gross income (AGI). Then, you subtract any eligible deductions (either itemized or the standard deduction).
Personal exemptions have been eliminated at the federal level since the 2017 tax law changes.
Most taxpayers claim the standard deduction, which varies depending on filing status, as shown below.
2024 – 2025 Federal Standard Deductions
| Filing Status | Standard Deduction Amount |
|---|---|
| Single | $14,600 |
| Married, Filing Jointly | $29,200 |
| Married, Filing Separately | $14,600 |
| Head of Household | $21,900 |
Some taxpayers choose to itemize their deductions, subtracting eligible expenses. These can include student loan interest payments, IRA contributions, moving expenses, and health insurance contributions for self-employed individuals. Common itemized deductions also include:
- Deduction for state and local taxes paid (SALT deduction): Allows taxpayers to deduct up to $10,000 of state and local property taxes plus either state and local income taxes or sales taxes.
- Deduction for mortgage interest paid: Interest paid on mortgages for up to two homes is deductible, limited to the first $1 million of debt (or $750,000 for homes purchased after Dec. 15, 2017).
- Deduction for charitable contributions
- Deduction for medical expenses exceeding 7.5% of AGI
If the standard deduction exceeds the sum of your itemized deductions, you’ll receive the standard deduction.
After subtracting deductions from your AGI, you arrive at your taxable income. A taxable income of zero means you owe no income tax. A how much will i owe in taxes calculator can simplify this calculation.
How to Calculate Federal Tax Credits
Unlike adjustments and deductions, which reduce your taxable income, tax credits directly reduce your tax liability – the amount of tax you owe.
For instance, if your tax liability is $1,000, and you qualify for a $200 tax credit, your liability decreases to $800. Tax credits are awarded under specific conditions. Refundable tax credits allow you to receive a refund even if you owe no income tax, while nonrefundable credits can only reduce your liability to zero.
Common federal income tax credits include:
- The Earned Income Tax Credit (EITC): A refundable credit for taxpayers with income below a certain level. The 2024 credit can be up to $7,830 for taxpayers with three or more children ($8,046 for tax year 2025).
- The Child and Dependent Care Credit: A nonrefundable credit for childcare expenses incurred while working or looking for work, up to $3,000 for one child or $6,000 for two or more children.
- The Adoption Credit: A nonrefundable credit for certain expenses related to the adoption of a child.
- The American Opportunity Tax Credit: A partially refundable credit for qualified education expenses for the first four years of post-secondary education, up to $2,500 per year.
Other credits exist for energy-efficient equipment installation, foreign taxes paid, and health insurance payments (in some cases). Using a how much will i owe in taxes calculator can help you factor in these credits.
Calculating Your Tax Refund
Whether you receive a tax refund depends on the amount of taxes withheld from your paycheck during the year, your tax liability, and any refundable tax credits you received.
If the amount withheld exceeds your tax liability when you file your return, you’ll receive a refund for the difference. You’ll also receive a refund equal to the refundable amount of any credits you are eligible for even if you paid no taxes during the year and owe no taxes.
Paying Your Taxes Owed
If you owe taxes, file on time to avoid late filing penalties.
If you can’t afford to pay your full tax bill, pay as much as you can and contact the IRS to discuss payment options, such as short-term extensions or installment agreements. Interest charges typically apply to overdue balances, but the IRS may waive penalties or fees in certain situations.
Consider using a tax-filing service that allows you to pay your taxes by credit card to earn credit card rewards and points. The IRS authorizes PayUSAtax, Pay1040, and ACI Payments, Inc. for credit card payments, but these processors charge fees (around 2% of the payment). Ensure the rewards outweigh the cost.
The most affordable options are paying by check or via IRS Direct Pay (directly from a savings or checking account). Tax filing services provide instructions for both methods.
State and Local Income Taxes
Many states, cities, and counties levy their own income taxes in addition to the federal income tax. These require separate state tax returns with their own specific rules.
