Income Tax Calculator

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Jan 15th, 2021

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$4,281

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by
Sarah York, EA

Sarah is a staff writer at Keeper Tax and has her Enrolled Agent license with the IRS. Her work has been featured in Business Insider, Money Under 30, Best Life, GOBankingRates, and Shopify. She has nearly a decade of public accounting experience, and has worked with clients in a wide range of industries, including oil and gas, manufacturing, real estate, wholesale and retail, finance, and ecommerce. Sarah has extensive experience offering strategic tax planning at the state and federal level. During her time in industry, she handled tax returns for C Corps, S corps, partnerships, nonprofits, and sole proprietorships. Sarah is a member of the National Association of Enrolled Agents (NAEA) and maintains her continuing education requirements by completing over 30 hours of tax training every year. In her spare time, she is a devoted cat mom and enjoys hiking, baking, and overwatering her houseplants.

It can be stressful to get a handle on your income tax situation. Congratulations on taking the first step!

Now that you’re here, let’s take some time to understand the taxes you owe, what steps are available to minimize your bill, and how to stay on top of your taxes going forward. 

How does this income tax calculator work? 

Just enter some basic information about yourself, and our income tax calculator will estimate how much tax you'll owe,  or — if you see a negative number — how big your refund might be. 

It’s perfect for the roughly 10 million Americans who deal with the uncertainty of having self-employment income and want to know how it will affect their taxes. If you do have a W-2 job — with or without a side gig — our calculator will even estimate your withholding. That way, you won’t have to whip out your tax forms to get an answer.

Notable factors included in our calculations

This calculator only considers your W-2 and self-employment income. It doesn’t factor in income from other sources, like investments, rental income, or retirement income. 

Note that the calculator:

  • Assumes moderate state and federal withholding on your W-2 income
  • Includes a projected Qualified Business Income Deduction on your self-employed earnings
  • Doesn’t account for tax deductions or credits 

What taxes do you pay when you file your return?

A number of different taxes are calculated on your annual return, but for most Americans, only two are relevant: income tax and self-employment tax. (The latter applies to any money you earn from freelancing, a side hustle, or a small business.) 

Here’s what you need to know about them both.

Income taxes

Federal income tax is the most common type of tax, and it applies to all “earned income.” (That means any income you received in exchange for performing a job.)

You may have heard the US tax system described as “progressive” or “graduated.” Here’s what that means.

How the progressive tax system works

The easiest way to understand the progressive tax system is to think of income in terms of buckets. The first bucket of income is taxed at 10%, the second at 12%, the third at 22%, and so on. 

For example, let’s say you have gross wages of $50,000. The first $10,275 is taxed at 10%, the next $31,500 is taxed at 12%, and the remainder of your salary ($8,225) is taxed at 22%. So your total tax liability would be broken down like this:

A breakdown of how much tax someone making $50,000 would owe, showing three tax rates

These buckets are called “tax brackets.” The idea is to treat everyone equally while still requiring higher taxes from higher earners.

For instance, the first $10,275 that Jeff Bezos makes is taxed at 10%, just like everyone else. The only chunk of his income that is taxed at the highest rate (37%) is the income in excess of half a million dollars. 

You may have heard the terms “marginal” and “effective” tax rates thrown around. Your marginal tax rate simply refers to the highest tax bracket your income is exposed to. So using the example above, where you made $50,000, your marginal tax rate would be 22%.

But as we’ve learned, the majority of your income isn’t taxed at 22%. So the effective tax rate is used to describe the average rate that you actually pay. Using the example above, your effective tax rate would be 14%. That’s the average of 10, 12, and 22: 10 + 12 + 22) / 3 = 14. 

The income tax brackets for 2021-2022, by filing status

Now that you have the basics, there’s one other complicating factor: filing statuses.

The tax brackets are determined according to your filing status: single, married filing jointly (MFJ), married filing separately (MFS), and head of household (HoH). See the table below: 

Tax Rate Single MFJ MFS HoH
10% $0 to $10,275 $0 to $20,550 $0 to $10,275 $0 to $14,650
12% $10,276 to $41,775 $20,551 to $83,550 $10,276 to $41,775 $14,651 to $55,900
22% $41,776 to $89,075 $83,551 to $178,150 $41,776 to $89,075 $55,901 to $89,050
24% $89,076 to $170,050 $178,151 to $340,100 $89,076 to $170,050 $89,051 to $170,050
32% $170,051 to $215,950 $340,101 to $431,900 $170,051 to $215,950 $170,051 to $215,950
35% $215,951 to $539,900 $431,901 to $647,850 $215,951 to $323,925 $215,951 to $539,900
37% $539,901 or more $647,851 or more $323,926 or more $539,901 or more

Self-employment taxes

Self-employment taxes are a combination of Social Security and Medicare taxes (often referred to as FICA).

For W-2 employees, these are automatically calculated and withheld from their paychecks and reported on their W-2. Consequently, they rarely have to deal with these taxes when they file their annual 1040 — they’ve already been squared up during the year.

Self-employed folks, on the other hand, don’t have it so easy. They have to calculate and remit their Social Security and Medicare taxes when they file, to the tune of 15.3%. To learn more about why this rate is so high, check out our guide to self-employment taxes

How do you lower your tax bill? 

Step #1: Claim your business write-offs

If you have freelance income or a side hustle, business write-offs are the only way to directly lower your self-employment taxes. The simple definition of a write-off is any work-related cost that’s ordinary in your industry and necessary for completing the job.

Oftentimes, people hesitate to claim business write-offs because they picture conventional things like computers, software, and office supplies that might not apply to them. But what’s traditional in one industry might not be traditional in another.

A pet groomer, for instance, probably doesn’t need a postage scale, but they do need shears, pet shampoo, and treats. Similarly, a freelance photographer probably doesn’t need a fax machine, but they might need ring lights, props, and multiple camera lenses.  

Don’t miss out on write-offs because you’ve boxed yourself in. You know what you need to get the job done, so write-off those costs! And if you need some inspiration, check out our freelance tax deductions tool that lists common write-offs for more than 25 different jobs, from real estate agents to bloggers.

Step #2: Don’t miss out on your income adjustments

Income adjustments happen before anything else is calculated on your return, and they allow you to reduce the income subject to tax. The most common income adjustments include: 

  • Educator expenses (up to $250)
  • Retirement contributions
  • HSA contributions
  • Self-employed health insurance
  • Student loan interest
  • Alimony after a divorce
  • The deductible part of self-employment tax

Step #3: Take the highest deduction available

Every taxpayer has two options here: the standard deduction or the itemized deduction. Whichever option you claim, your deduction is included on top of your business write-offs.

Standard deduction

The goal of the standard deduction is to shield a base amount of income from taxation. It’s supposed to be routinely adjusted for cost of living, but I’ll leave it to the reader to decide if the IRS is anywhere close to the mark.

The standard deduction is granted automatically based on your filing status: 

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

Step #4: Take advantage of your tax credits

Credits lower your tax bill dollar for dollar. If you’re eligible to claim one, savor it in all its money-saving goodness.

There are two types of credits: refundable and non-refundable.

Refundable credits

These are by far the best type. Refundable tax credits can be paid out to you as a refund even if you withheld nothing during the year.

For example, if you have a $1,000 credit, and your tax bill is only $200, the remaining $800 gets issued in the form of a refund.

Examples of common refundable credits include: 

  • 💰  Earned Income Credit: Ranging from $1,502-6,728, this credit is available to taxpayers with earned income and whose total income doesn’t exceed certain limits
  • 🍼  Child Tax Credit: Expanded with the American Rescue Plan (ARP), the CTC ranges from $3,000-3,600 and is available for taxpayers with children under age 17. For 2022, these rates may return to the pre-ARP amounts: $2,000 per child under the age of 16. 
  • 🎒  American Opportunity Credit: Students are eligible to claim $2,500 annually during the first four years of post-secondary school. However, only 40% of the credit is eligible for refund, with a max allowable refund of $1,000. 
  • 🏥  Premium Tax Credit: This credit is available to low-income taxpayers who purchase their health insurance through the Marketplace, and is usually distributed throughout the year to offset the cost of health insurance. 
  • 👶  Child and Dependent Care Credit (2021 only): Expanded under the American Rescue Plan, this credit is refundable for 2021 only. It accounts for child-care expenses while the parent is working or looking for work. The max credit is $4,000 per qualifying child.

Nonrefundable Tax Credits

While you can’t cash out these credits, they still pack a punch at tax time. As mentioned earlier, credits reduce your tax bill dollar for dollar, so they essentially work like tax withholdings. Common examples include:

  • 🏦  Saver’s Credit: Available to any taxpayers who make retirement contributions and whose income doesn’t exceed certain limits. The max credit available is $1,000.
  • 📚  Lifetime Learning Credit : Covers 20% of your education expenses up to $10,000, with a max credit of $2,000. 
  • 👪 Adoption Credit: Available to taxpayers pursuing adoption, with a max benefit per adoptive child of $14,440. Even though this credit is nonrefundable, it can be carried forward for up to 5 years and applied to future tax liabilities. 
  • 👶  Child and dependent care credit (2022 onward): Unless the 2021 changes get extended by congress, the dependent care credit will return to a max of $1,050 per child and will no-longer be refundable. 
  • 🌍  Foreign tax credit: This credit is available for taxpayers who pay tax on foreign income.

How to stay on top of your tax bill

Because freelancers and gig workers don’t have an employer withholding their taxes for them, the IRS made it possible for taxpayers to make “estimated tax payments” throughout the year. Aren’t we lucky? 

Making estimated tax payments

Estimated tax payments are a way to “pay as you go” during the year. If you have a good set of records to work with, you can use your actual figures for the quarter and plug them into a quarterly tax calculator to figure out what your next payment should be.

Estimated tax payments are due the 15th day following the end of the quarter, so the payment schedule looks like this: 

  • 1st quarter (Jan-Mar): Due April 15th
  • 2nd quarter (Apr-Jun): Due July 15th
  • 3rd quarter (Jul-Sep): Due October 15th
  • 4th quarter (Oct-Dec): Due January 15th 

Who should make estimated payments 

As a general rule, if you expect to owe less than $1,000, you’re off the hook for these. For everyone else, keep reading.

The goal of estimated tax payments is to avoid getting hit with an underpayment penalty. Underpayment penalties range from 3-5% of your tax due, and are subject to interest along with the rest of your unpaid bill. This penalty is avoidable if: 

  • You withheld at least 90% of the current tax due amount, or
  • You withheld 100% of the prior year tax due amount

If neither of the two apply to you and you expect to owe more than $1,000, you should be making estimated tax payments.

Now that you’ve made it to the end of this article, kudos! Learning is half the battle. Now go forth and file with confidence!

Sarah York, EA

website

Sarah is a staff writer at Keeper Tax and has her Enrolled Agent license with the IRS. Her work has been featured in Business Insider and Money Under 30. She has nearly a decade of public accounting experience, and has worked with clients in a wide range of industries, including oil and gas, manufacturing, real estate, wholesale and retail, finance, and ecommerce. Sarah has extensive experience offering strategic tax planning at the state and federal level. During her time in industry, she handled tax returns for C Corps, S corps, partnerships, nonprofits, and sole proprietorships. Sarah is a member of the National Association of Enrolled Agents (NAEA) and maintains her continuing education requirements by completing over 30 hours of tax training every year. In her spare time, she is a devoted cat mom and enjoys hiking, baking, and overwatering her houseplants.