How to Calculate Your Federal Income Tax Step by Step
A step-by-step guide to calculating your US federal income tax, from gross income to taxable income to applying the bracket rates correctly.
Start With Your Gross Income
Your gross income is every dollar of income you received during the tax year from any taxable source. This includes wages from a W-2 job, self-employment income, freelance payments, interest income from savings accounts, dividends from investments, and any other income reported on a 1099 or other tax form.
Not all money you receive counts as gross income. Gifts under the annual exclusion limit, inheritances in most cases, workers compensation, and certain government benefits are excluded from gross income. Social Security benefits are partially taxable depending on your total income.
Add up every taxable income source to get your total gross income. If you receive multiple W-2s from different jobs, add the wages from each. Include any side income reported on 1099-NEC or 1099-MISC forms. Investment income from 1099-DIV and 1099-INT forms also adds to gross income.
Subtract the Standard Deduction
Most taxpayers reduce their gross income by taking the standard deduction rather than itemizing individual deductions. For 2024, the standard deduction is $14,600 for single filers, $29,200 for married couples filing jointly, and $21,900 for heads of household.
You may also be able to reduce gross income by above-the-line deductions before even reaching the standard deduction calculation. Common above-the-line deductions include traditional IRA contributions, student loan interest, contributions to a Health Savings Account, and the self-employment tax deduction for self-employed individuals. These deductions reduce your adjusted gross income (AGI).
After subtracting the standard deduction from your AGI, the result is your taxable income. This is the number you use to determine your tax bracket and calculate your tax liability. For most people with relatively straightforward tax situations, the standard deduction process described here is sufficient.
Apply Each Tax Bracket in Order
Using your taxable income and the current year's bracket thresholds, calculate the tax owed in each bracket separately and then add them together. Do not apply your top bracket rate to all of your income — apply each rate only to the income within that bracket.
For a single filer with $55,000 in taxable income in 2024: the first $11,600 is taxed at 10%, generating $1,160. The next $35,550 (from $11,601 to $47,150) is taxed at 12%, generating $4,266. The remaining $7,850 (from $47,151 to $55,000) falls in the 22% bracket, generating $1,727.
Sum the three results: $1,160 plus $4,266 plus $1,727 equals $7,153. This is the federal income tax before any credits. Credits reduce your tax bill directly, dollar for dollar. Common credits include the Child Tax Credit, the Earned Income Tax Credit, education credits, and the Child and Dependent Care Credit.
Add It All Up for Your Total Tax
Your total federal tax obligation includes not just income tax but also self-employment tax if you have self-employment income. Self-employment tax covers Social Security and Medicare contributions for self-employed workers and amounts to 15.3% of net self-employment income (though half of this is deductible above the line).
Subtract any applicable tax credits from your combined income tax plus self-employment tax to arrive at your total tax owed. Then compare that to the amount already paid through withholding (from your W-2) or quarterly estimated tax payments. If your total tax exceeds what you have paid, you owe the difference. If you paid more than you owe, you receive a refund.
Keep in mind that federal income tax is separate from state income tax, which applies in most states and follows each state's own rate structure and deduction rules. Your overall tax burden includes both federal and state obligations.
Calculate Your Effective Tax Rate
Your effective federal income tax rate is your total federal income tax divided by your total gross income, expressed as a percentage. Using the example above: $7,153 in tax divided by (assume $55,000 gross income plus $14,600 standard deduction reduction means $55,000 is already taxable), the effective rate is approximately 13%.
The effective rate is what you actually pay as a percentage of your income. It is always lower than your marginal bracket rate, which only applies to the dollars at the top of your income. Knowing your effective rate helps you understand your true tax burden and make better comparisons to alternative scenarios.
A useful check: if your effective federal rate seems dramatically different from what you expected based on your income, review whether you included all income sources, applied deductions correctly, and applied each bracket rate only to the income within that bracket. Small errors in any of these steps can produce meaningfully wrong results.