Figuring out how much you owe in federal income tax can be confusing at best. Federal taxes are calculated using a progressive sliding scale, which means the more money you make, the more you pay. We’ve created a comprehensive guide to help you figure out what you’ll owe when you file in April this year.
What is the Federal Income Tax?
Federal income tax is a tax you’ll pay on the total amount of income you made in the previous tax year. According to data fromU.S. Joint Committee on Taxation, income taxes on individuals make up about 41 percent of all taxes paid to the federal government. You are required to pay federal income on all of your taxable income, which is your gross income minus deductions, exemptions, and credits.
The IRS employs a very broad definition of “income.” It’s reasonable to assume most of the money you make is taxable even if you’re an independent contractor, entertainer, or streamer. The United States uses a progressive income tax system that divides individuals and married couples (filing jointly) into separate categories and tax rates. These rates depend on your total taxable income. The term tax bracket refers to how much money you made and your corresponding tax rate. If you made more money, you will be taxed at a higher rate. Federal income tax is separate from state income tax. If your state imposes its own income tax, you are required to file and pay that tax separate from your federal tax. If you aren’t sure how to pay state income taxes, or whether your state has them, check out our guide onhow to file state taxes. You are required to file and pay both federal income tax and state income tax byTax Day, which is Monday, April 15th in 2019.
What Determines Your Federal Income Tax Rate?
Factor 1: Your Income
The most important factor in deciding how much you’ll pay in federal income tax is (you guessed it) your income. Federal taxes are taken as a percentage of your income based on how much you made. This is after deductions. This amount can be referred to as your “taxable income.” For 2019, taxable income rates for individuals are as follows:
| Taxable Income | Bracket |
| $0 - $9,525 | 10% of total income |
| $9,526 - $38,700 | Pay $952.50 and 12% of income above $9,525 |
| $38,701 - $82,500 | Pay $4,453.50 and 22% of income above $38,700 |
| $82,501 - $157,500 | Pay $14,089.50 and 24% of income above $82,500 |
| $157,501 - $200,000 | Pay $32,089.50 and 32% of income above $157,500 |
| $200,001 - $500,000 | Pay $45,689.50 and 35% of income above $200,000 |
| $500,001 + | Pay $150,689.50 and 37% of income above $500,000 |
Factor 2: Filing Jointly vs. Individually
There are two major ways to file your federal income taxes: individually or jointly with your spouse. The rates listed above are valid only for those filing their taxes individually. If you are married filing jointly, your taxes rates are as follows:
| Taxable Income | Bracket |
| $0 - $19,050 | 10% of total income |
| $0 - $19,050 | Pay $1,905 and 12% of income above $19,050 |
| $77,401 - $165,000 | Pay $8,907 and 22% of income above $77,400 |
| $165,001 - $315,000 | Pay $28,179 and 24% of income above $165,000 |
| $315,001 - $400,000 | Pay $64,179 and 32% of income above $315,000 |
| $400,001 - $600,000 | Pay $91,379 and 35% of income above $400,000 |
| $600,001 + | Pay $161,379 and 37% of income above $500,000 |
Factor 3: Whether Your Income is Protected
Not all income is considered taxable. If you’ve received money as a gift or inheritance after the death of a loved one, you can exclude this money from your taxable income. Qualified scholarships, Welfare payments, child support payments, alimony payments for divorces finalized after the year 2018, and most healthcare benefits are also exempt from federal taxes. If you have any of these sources of income, you may be in a lower tax bracket than you think.
How Can I Lower How Much I Pay in Federal Income Taxes?
To lower your tax burden, you’ll need to lower the amount of taxable income that’s recorded on your account. There are two ways you can decrease the amount that you owe in taxes.
Credits
Tax credits have no effect on your tax bracket, but they can significantly lower your tax burden if used properly. Tax credits directly reduce the amount of money you owe. For example, if you owe $10,000 in taxes and you have $2,000 worth of tax credits, your total balance owed would now be $8,000. If you decided to continue your education, adopt a child, send your child to daycare / a babysitter, or purchase a qualifying electricity-powered vehicle, you may qualify for a tax credit that lowers the amount that you owe in taxes.
Deductions
Unlike tax credits, tax deductions decrease your amount of taxable income recorded. Applying enough tax deductions can lower your tax bracket, allowing you to pay a smaller percentage of your income. For example, if the total amount of money you’ve made this year is $50,000, but you claim $20,000 in deductions, your taxable income is now only $30,000. In this specific example, you’ll pay a whopping 10 percent less in federal income tax than you would if you hadn’t claimed any deductions. Some of the most popular deductions you can claim when filing your taxes this season include:
- Student loan interest deduction. If you paid interest on a student loan, you may deduct up to $2,500 worth of interest from your total taxable income.
- Standard deduction. The standard deduction is one that anyone can claim if they choose not to itemize their expenses, no questions asked. For taxes due before April 15th, 2019, the standard deduction is $12,000 for those filing individually or married couples filing separately. The standard deduction is $24,000 for married couples filing jointly.
- State and local tax deduction. You may deduct a combined $10,000 for dues you’ve paid to state taxes, local taxes, and property taxes in the past year.
- IRA contribution deduction. If you have a traditional IRA, you may be able to deduct a percentage of your contributions depending on whether you and your spouse have an employer-sponsored retirement account.
These are just a few of the many tax deductions you can take advantage of for the upcoming tax season. If you are a business owner or independent contractor, you may choose to itemize your deductions instead of taking the $12,000 standard deduction to save even more. Consult with your CPA to see which deductions your unique situation qualifies you for.
How to File Your Federal Income Tax
After you’ve calculated your taxable income, you’ll need to choose whether to file by hand, work with an accountant, or use a tax prep software. If you are filing by hand, visit IRS.gov to find the necessary forms you’ll need to print and mail in. If you will be using a tax prep software, start by checking out our list comparing the best tax software programs of the year.Remember that you are required to file your federal taxes on, or before, April 15th. If you are granted an extension, you are still required to make an estimated payment by Tax Day.
Final Thoughts
The best way to save money when filing your taxes is to keep track of the expenses that you incur throughout the year. Even if you are not a small business owner or contractor, you probably have more tax-deductible expenses than you may think. From childcare costs to gifts made to registered nonprofits, churches, and charities, keep a running document detailing where your money is going. This will help make life easier during tax season and you’ll have an easier time creating and maintaining a household budget.
About Sarah Horvath
Sarah is an expert in the insurance, investing for retirement and cryptocurrency space.