How Are Your Taxes Calculated? Tax Brackets, Explained

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By Kelly Phillips Erb. Reviewed and updated by Savvy Ladies Volunteer and Board Member Matthew E. Foreman, J.D., LL.M., Partner at Falcon, Rappaport & Berkman and his team on March 6, 2026.

Questions women are asking:

• How can I budget to pay my taxes and not be in the hole at tax time?
• What is my tax filing status? Can I file separately if I am still married?
• I am getting money from my ex-spouse’s pension – can I use it to buy a house? Will there be taxes on the money I get?
• I am engaged to a man who has substantial debt. I am wondering how this will affect me in the future. Will it affect my taxes?
• How can I save money without having to pay taxes? What is the least amount allowed by law?
• My annual salary is around $48,000, how much should I budget to cover taxes?

Figuring out your taxes can be complicated. Fortunately, there are loads of software packages and tax professionals who can help you. But if you’re trying to get a sense of what you might owe—or the size of a refund you might expect—here’s how to estimate your taxes.

How to Estimate Your Taxes

At its most basic, federal income taxes are figured by adding up your income and netting out any deductions. What remains–your taxable income–is used to figure out the tax due.

Here’s how that shakes out.

As a first step, you’ll figure out your total income. That includes your wages and pay reported on an information form, like Form W-2 or Form 1099, as well as interest, dividends, and the like. You’ll want to include all income, including tips, gambling income, and money from side gigs, even if you don’t receive a tax information form (like Form 1099). For federal income tax purposes, most income is considered taxable unless it’s specifically excluded by law.

If you have adjustments to income, like alimony, retirement contributions, or student loan interest, you’ll report those on Schedule 1 and adjust your total income accordingly. The result–found on line 11 of your Form 1040–is considered your adjusted gross income, or AGI.

Your next step is to subtract your deductions from your AGI. There are two ways to handle your deductions: itemized deductions or standard deductions. You’ll itemize deductions like your home mortgage interest and medical expenses on Schedule A, but it’s worth noting that most taxpayers—well over 90% these days—claim the standard deduction. You can find the standard deduction for the 2025 tax year, based on your filing status, here:

(Importantly, your filing status is determined as of the last day of the tax year–that’s December 31–according to state law.)

What’s left, after adjustments and deductions, is your taxable income. You’ll use the tax brackets (you can find those in the Form 1040 instructions here) to calculate your tax liability.

Don’t panic, though—that’s just the total tax liability. The U.S. has a pay-as-you-go system of tax. That means that, for most taxpayers, tax is withheld for you with each paycheck. You’ll subtract any taxes you paid during the year (typically reported on your Form W-2), any estimated tax payments you’ve made, and any credits, like the child tax credit, you were entitled to claim.

If your tax liability is greater than what you’ve paid (accounting for the credits), you’ll owe at tax time.

But if your tax liability is less than what you’ve paid (again, including those credits), you’re entitled to a refund.

Understanding Tax Brackets

It can be tempting to just figure out your tax rate according to the charts and multiply it by your income—but that would produce a tax that’s much higher than what you’ll owe. That’s because the U.S. has a gradual income tax system—the rate of tax increases as your income increases. While rates go up as income increases, everyone pays the same rate for the same income at each level.

Here’s an example. Let’s assume you have a taxable income of $90,000 as a single taxpayer. You might look at the tax tables and assume your tax rate is 22%. But that’s your marginal tax rate—or your top rate. Every dollar that you make is not taxed at 22%. The first $11,925 of your 2025 taxable income will be taxed at a rate of 10%. Each of your dollars from $11,926 to $48,475 will be taxed at a rate of 12%. Lastly, each of your dollars from $48,476 to $90,000 will be taxed at a rate of 22%. 

So that $90,000—in the 22% bracket—doesn’t result in a tax of $19,800 ($90,000 x 22%). Instead, it’s calculated using those tax brackets above, resulting in a total tax of $14,713.66. That works out to a blended rate closer to 17%.

You can sell all rates here.

Tax Bracket Calculator

The effective tax rate is the average tax rate you will pay on your income. In other words, total taxes paid divided by total income. Whereas, your marginal tax rate is the rate you will pay on any additional incremental income based on the progressive tax brackets.

Use this calculator to estimate your effective and marginal tax rates.

Look closely at the brackets.  All taxpayers in the same filing status are taxed at the same rate for the same income.

For more information about tax rates—as well as credits and deductions—check out IRS Pub 17.

Have questions about your tax returns? Contact our Free Financial Helpline today and get matched with a financial advisor for pro-bono financial mentoring.

About the Author

Kelly Phillips Erb is a member of the PA bar, licensed to practice before the US Tax Court & the IRS, and a Savvy Ladies Helpline Volunteer.