How to Calculate U.S. Individual Income Tax
- 1). Gather W-2 forms for all positions held for the filing year.
- 2). Sum up all earnings from the W-2 forms, plus self-employment, business, rental and other income, without accounting for deductions and taxes. This total amount is known as total income.
- 3). Calculate adjusted gross income by adding expenses or subtracting deductions, such as educator expenses, health savings deductions, moving expenses, self-employment taxes, IRA deductions, and so on. See Resources for more information on these expenses.
- 4). Subtract $5,700 (as of 2009) from adjusted gross income. The $5700 is the standard deduction for a single person or a married person filing separately. If you have a mortgage, high medical costs or other large deductions adding up to more than that amount, itemize your deductions rather than taking the standard one.
- 5). Subtract $3,650 (as of 2009) from the resulting amount, if allowed. This subtraction is your personal exemption and is only available to persons filing singly and not claimed as a dependent. The amount left over is your taxable income.
- 6). Calculate income tax owed at each tax bracket. The U.S. income tax system has several brackets, with the tax rate increasing as more income is earned. The tax rate for a particular bracket is only applied to the income earned in that bracket.
For example, take a person with a taxable income of $70,000. This earning falls under three tax brackets: 10 percent from $0 to $8,375, 15 percent from $8,375 to $34,000, and 25 percent from $34,000 to $82,400.
For the first bracket, multiply 10 percent by $8,375. The resulting tax owed in this bracket is $837.50.
For the second bracket, the rate of 15 percent is only applied to the amount earned between $8,375 and $34,000, which is $25,625. At 25 percent, the amount owed in this bracket is $3,843.75.
For the third and last bracket, the rate of 25 percent is only applied to earnings between $34,000 and $82,400. Since this person earned $70,000 in taxable income, the taxable amount is $36,000; 25 percent of $36,000 is $9000.
Additionally, see Resources to download the official IRS Form 1040 instruction booklet which contains a table showing how much taxes are owed for various income levels. - 7). Sum up the income taxes calculated at each bracket to determine the total amount of federal income taxes owed. In this example, the total is $13,681.25.
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