Income Tax Calculator

U.S. income tax flows through several steps. Start with gross income (wages, business income, interest, dividends, capital gains). Subtract adjustments — traditional IRA contributions, HSA contributions, student loan interest deduction, self-employment tax deduction — to get adjusted gross income (AGI). Subtract the larger of the standard deduction or your itemized deductions to get taxable income. Apply the tax brackets to taxable income, then subtract any tax credits to get tax owed.

Each step of this funnel matters. AGI is used for many phaseouts — Roth IRA contribution eligibility, the IRA deduction, and education credits all phase out at AGI thresholds. Reducing AGI through pre-tax retirement contributions or HSA deposits can preserve tax benefits worth more than the contributions themselves.

U.S. federal income tax is progressive: each tier of income is taxed at its own rate. Your marginal rate is the rate on the last dollar earned (the bracket your top dollar falls into). Your effective rate is total federal tax divided by total income — always lower than marginal, often by 5–10 points.

Confusing the two is a common error. "I don't want a raise that pushes me into the next bracket" is mathematically backwards: only the dollars above the bracket threshold are taxed at the higher rate, never the dollars below it. There's no bracket where earning more costs you more in net pay.

The Tax Cuts and Jobs Act of 2017 nearly doubled the standard deduction, and most filers now take it (about 90% of returns post-TCJA). Itemizing typically pays off only if the sum of mortgage interest, state and local taxes (capped at $10,000), charitable contributions, and medical expenses (above 7.5% of AGI) exceeds the standard deduction.

Bunching strategy: filers near the itemizing threshold can sometimes save by alternating years — concentrating charitable donations or property tax prepayments into one year and itemizing, then taking the standard deduction the next. A donor-advised fund makes this easier with charitable giving.

A deduction reduces taxable income; a credit reduces tax owed dollar-for-dollar. A $1,000 deduction in the 22% bracket saves $220. A $1,000 credit saves $1,000. Refundable credits (Earned Income Tax Credit, partly the Child Tax Credit, partly the American Opportunity Credit) can produce a refund larger than the tax owed — paying out cash even at zero tax liability.

Always check credit eligibility before relying on a deduction. The Saver's Credit, Child and Dependent Care Credit, Premium Tax Credit, and education credits collectively go unclaimed by millions of eligible filers each year, often costing those households $500–$5,000+.

Long-term capital gains (assets held more than one year) and qualified dividends are taxed at lower rates than ordinary income — typically 0%, 15%, or 20% depending on taxable income. The 0% bracket extends well into middle-class income and is among the most underused tax-planning tools: realizing long-term gains in a low-income year (a sabbatical, a year between jobs) can permanently capture a 0% rate on those gains.

Short-term capital gains (held one year or less) are taxed as ordinary income. Tax-loss harvesting — selling losing positions to offset gains, or up to $3,000 of ordinary income — is another common optimization, especially in volatile years.