How Are Your Taxes Calculated? Tax Brackets, Explained

By Kelly Erb

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 Calculate Your Taxes

When you file your tax return, you’ll start with your gross income (that’s all income that’s not otherwise excluded) and subtract any tax deductions. It’s worth noting that most taxpayers—well over 90% these days—claim the standard deduction. You can find those, based on your filing status, here:

Filing Status Standard Deduction
Single $12,950
Married Filing Jointly $25,900
Married Filing Separately $12,950
Head Of Household $19,400


What’s left is 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 US 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 tax you paid during the year (it should be reported on your Form W-2), any estimated tax payments you’ve made, and any credits 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 US has a progressive income tax system—the rate of tax increases as income increases. With our system, rates go up as income increases, but everyone pays the same rate for the same income at each level.

Here’s an example. Let’s assume you have taxable income (generally, gross income less adjustments and deductions) of $90,000 as a single taxpayer. You might look at the tax tables and assume your tax rate is 24%. But that’s your marginal tax rate—or your top rate. Every dollar that you make is not taxed at 24%.

Look closely at the brackets. Every dollar of taxable income (income figured after deductions, exemptions, exclusions, and other adjustments) from zero dollars to $10,275 is taxed at 10% for every person filing as single. Every dollar of taxable income from $10,276 to $41,775 is taxed at 12% for every person filing as single. Every dollar of taxable income from $41,776 to $89,075 is taxed at 22% for every person filing as single. Every dollar of taxable income from $89,076 to $170,050 is taxed at 24% for every person filing as single. And so on. In other words, all taxpayers in the same filing status are taxed at the same rate for the same income.

So that $90,000—in the 24% bracket—doesn’t result in a tax of $21,600 ($90,000 x 24%). Instead, it’s calculated using those sliced rates above, resulting in a total tax of $15,435.50. The math works indiciates that it’s actually a blended rate closer to 17%.

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

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