The Income Tax Calculator calculates the refund or potential owing amount on a federal tax return. It is primarily aimed for US residents and is based on the 2025 and 2026 tax brackets (One Big Beautiful Bill). The tax values for 2026 can be used to estimate 1040-ES returns, plan ahead, and compare.

Taxable Income

To calculate an expected tax refund or due, first identify your taxable income. W-2 forms can be used as a reference while filling out the input fields. Relevant W-2 boxes are displayed to the side if they can be removed from the form. Subtract deductions and exemptions, such as 401(k) or pension plan payments, from gross income. The final sum should represent the taxable income amount.

Other Taxable Income

Interest Income – The majority of interest collected, including that on checking and savings accounts, CDs, and income tax refunds, will be taxed as ordinary income. However, there are several exceptions, such as municipal bond interest and private-activity bonds.

Short Term Capital Gains/Losses – Profit or loss on the sale of assets held for less than a year.  It is taxed as ordinary income.

Long Term Capital Gains/Losses – Profit or loss on the sale of assets held for a year or more.  The taxation rules are governed by the ordinary income marginal tax rate.

Ordinary Dividends – Unless explicitly stated otherwise, all payouts should be regarded ordinary.  Ordinary dividends are taxed like regular income.

Qualified Dividends – These are taxed at the same rate as long-term capital gains, which is lower than that of regular dividends. Many severe criteria are in place to legally define qualifying dividends.

Passive Income – The distinction between passive and active income is significant because taxpayers can claim passive losses. Passive income often originates from two sources: rental properties and enterprises that do not demand material input. Any excess passive income loss can be carried forward until used or deducted in the year the taxpayer disposes of the passive activity in a taxable transaction.

Exemptions

Tax exemptions are monetary exemptions designed to reduce or eliminate taxable income. They are not limited to personal income tax; for example, charities and religious organisations are normally tax-exempt. Some international airports offer tax-free shopping in the form of duty-free shops. Other examples include state and local governments that are not subject to federal income taxes.

Tax Deductions

Tax deductions are derived from expenses. They help to reduce tax bills by lowering the percentage of adjusted gross income subject to taxation. There are two forms of itemised deductions: above-the-line (ATL) and below-the-line (BTL), which lower taxes based on the marginal tax rate. The “line” in question is the taxpayer’s adjusted gross income (AGI), which is the lowest number on the front of Form 1040.

Modified Adjusted Gross Income (MAGI)

MAGI is primarily used to establish whether a taxpayer is eligible for specific tax deductions. It is simply AGI adjusted for certain deductions. The deductions are:

Student loan interest

One-half of self-employment tax

Qualified tuition expenses

Tuition and fees deduction

Passive loss or passive income

IRA contributions, taxable Social Security payments

The exclusion for income from U.S. savings bonds

The exclusion under 137 for adoption expenses

Rental losses

Any overall loss from a publicly traded company

Tips and overtime compensation

Car loan interest

Seniors

Above-the-line Deductions

ATL deductions reduce AGI, resulting in less income to pay taxes on. They include expenses claimed on Schedules C, D, E, and F, as well as “Adjustments to Income.” One benefit of ATL deductions is that they are deductible under the alternative minimum tax. ATL deductions have no effect on the BTL’s decision to accept the standard deduction or itemise. For additional information on accurate tax deduction computations, please visit the IRS’s official website. The following are some common examples of ATL deductions.

Traditional IRA contributions – Most people are able to make contributions to a traditional IRA, but these payments are not always tax-deductible. If the taxpayer’s Modified Adjusted Gross Income exceeds the annual restrictions, they may have to cut or eliminate their IRA deduction.

Student loan interest – The amount of interest paid on federal student loans.  It should be in box 1 of Form 1090-E, which lenders must provide after the first year.  Married couples who file separate returns are ineligible for this deduction. This deduction cannot be claimed if Modified Adjusted Gross Income exceeds the annual restrictions. In 2025, the claim maximum for single, head-of-household, or eligible widowers is $100,000, while the limitation for joint filers is $200,000.

Qualified tuition and fees – Education expenses must be qualified according to IRS definitions. Married couples filing separate returns are not eligible to claim this deduction. This deduction cannot be used in conjunction with the educational tax credit.

Moving expenses – Transporting household belongings from one residence to another for employment or commercial purposes is normally fully deductible, provided that the taxpayer’s employer does not repay them. The taxpayer’s new place of employment must be at least 50 miles from their old domicile.

Tips – Qualified tips of up to $25,000 per year are tax deductible from 2025 to 2028. The deduction is phased away for taxpayers with modified adjusted gross incomes greater than $150,000 ($300,000 for joint filers).

Overtime compensation – For tax years 2025 through 2028, eligible overtime compensation of up to $12,500 per year for single filers and $25,000 per year for joint filers may be deducted. The deduction is phased away for taxpayers with modified adjusted gross incomes greater than $150,000 ($300,000 for joint filers).

Car loan interest – Individuals can deduct up to $10,000 per year in interest on a loan used to purchase an eligible vehicle from 2025 to 2028. The deduction is phased down for taxpayers with modified adjusted gross incomes greater than $100,000 ($200,000 for joint filers).

Deduction for seniors – Individuals 65 and older may claim an additional $6,000 per year deduction for single taxpayers, or a total of $12,000 per year for married couples who qualify for both. The deduction is phased away for taxpayers with a modified adjusted gross income more than $75,000 ($150,000 for joint filers).

Below-the-line Deductions

BTL deductions are the Standard Deduction or Itemised Deductions from Schedule A. A BTL deduction is always restricted to the amount of the original deduction. For example, a $1,000 deduction will only lower net taxable income by $1,000. For additional information on accurate tax deduction computations, please visit the IRS’s official website. Examples of popular BTL deductions are shown here, along with basic information.

Mortgage interest – This applies to a conventional mortgage up to a specified amount; $750,000 in 2025 and 2026 for a primary residence, a second mortgage, a line of credit, or a home equity loan. Loans that are not secured by a home are classified as personal loans and are therefore non-deductible. The IRS defines a “home” as anything from a house to a condominium, co-op, mobile home, boat, or recreational vehicle.

Charitable donations – Only donations to authorised charity are eligible for tax deductions. Handouts to the homeless or payments to local organisations that are not classed as non-profit by the IRS are not deductable.

Medical expenses – Any expenses incurred for the prevention, diagnosis, or medical treatment of physical or mental illness, as well as any payments paid to treat or modify portions or functions of the body for health, may be deducted.  Medical charges for cosmetic procedures do not qualify. If premiums are paid after taxes, deductions are limited to expenses exceeding 10% of adjusted gross income, or 7.5% for those 65 and older. Health savings account donations are ATL deductions.

Sales and local tax – This federal deduction, sometimes known as SALT (state and local tax), can only be for income tax or sales tax. Taxpayers in jurisdictions without an income tax are likely to benefit more from deducting their sales tax.  This deduction is limited to $40,000 in 2025 and $40,400 in 2026, respectively.  The SALT cap is reduced to $10,000 whenever Modified Adjusted Gross Income surpasses $500,000 in 2025 and $505,000 in 2026.

The most common BTL deductions are the ones listed above, but there are a few more, such as investment interest or tax preparation expenses. However, the IRS allows for the deduction of some charges, which can help to lower tax obligations. Examples are presented here, however they do not represent the whole package. For further information, visit the official IRS website.

Out-of-pocket charitable contributions – Not only are donations to charitable organizations deductible, out-of-pocket expenses for charitable work can also be deducted, for example, buying paint to paint the walls of a cathedral or buying ingredients to cook for a homeless shelter.

Tax savings for teachers – This deduction allows K–12 educators to deduct up to $250 each year for school supplies.

Paying babysitters – Believe it or not, if a person volunteers at a non-profit while a babysitter cares for their children at home, any childcare payments can be deducted!

Job searching – By itemising expenses related with hunting for a new job, qualifying expenses that exceed two percent of adjusted gross income can be deducted.  Out-of-pocket expenses may include the cost of transportation to interviews, printing resumes, or business cards.

Smoking cessation – Participating in a smoking cessation program may be considered a medical tax deductible. The deduction may also apply to prescription medications used to treat nicotine withdrawal.

Disaster recovery – If a taxpayer’s home is damaged by a natural disaster and the person seeks federal assistance, the uninsured costs of recovery can be deducted.

Business expenses

Any costs related with running a business or trade can usually be deducted if the business is profitable. However, it must be both normal and necessary. Try to distinguish between company expenses, additional capital or personal expenses, and expenses used to calculate the cost of goods sold. Any business expense made when operating a sole proprietorship is considered ATL because it is deducted on Schedule C and subsequently subtracted while calculating AGI. Business expenses are complex and subject to a variety of rules. Some may be termed ATL deductions, while others will be BTL. As a result, it may be prudent to study the IRS laws regarding the deduction of business expenses.

Standard vs. Itemized Deductions

To illustrate the distinction between standard and itemised deductions, consider a restaurant with two meal options. The first is the a la carte, which is similar to an itemised deduction in that it allows for the consolidation of multiple goods to yield a final price. The second choice is the regular fixed-price supper, which, like the standard deduction, has most things pre-selected for ease. Although it is not as straightforward as it appears here, this is a broad comparison between itemised and standard deductions.

Most people choose to itemise because the sum of their itemised deductions exceeds the standard deduction; the higher the deduction, the lower the taxes paid. However, this is more time-consuming and necessitates the storage of several receipts. Instead of exhaustively itemising many of the alternative deductions described above, all taxpayers can pick the standard deduction, which is what the bulk of the population does. Some people prefer the standard deduction since it is less confusing and saves time. The annual standard deduction is a fixed sum established by Congress. In 2025, it will be $15,000 for single taxpayers and $30,000 for married taxpayers filing jointly, up from $14,600 and $29,200 in 2024 respectively.

The calculator automatically decides whether the standard or itemised deduction (based on inputs) will result in the greatest tax savings and applies the bigger of the two figures to the anticipated computation of tax due or owed.

Tax Credits

Congress creates and distributes tax credits to taxpayers who they believe are useful to society, such as those who practise environmentally friendly methods, save for retirement, adopt a child, or attend school. For taxpayers, they help to reduce tax costs by immediately lowering the amount of tax due. For example, a $1,000 tax credit reduces a $12,000 tax liability to $11,000. This differs from deductions, which merely reduce taxable income. As a result, a tax credit is often more effective at lowering the overall tax payment than a dollar-equivalent deduction.

It is critical to distinguish between non-refundable and refundable tax credits. Non-refundable credits can lower the overall tax liability to zero, but not beyond that. Any unused non-refundable tax credits will expire and cannot be carried forward to the following year. Refundable tax credit amounts, on the other hand, allow taxpayers to claim the whole amount regardless of whether their tax due falls below zero. If the difference is less than $0, you will receive a tax refund. Refundable tax credits are less prevalent than nonrefundable tax credits.

Due to the complexities of income tax calculations, our Income Tax Calculator only contains input areas for specific tax credits to keep things simple. However, you can manually enter these in the “Other” column. Simply follow IRS rules to calculate the exact figures for each tax credit. Also, the descriptions below are simply summaries. For further information on precise tax credit computations, please visit the IRS’s official website.

Examples of common tax credits are divided into four categories below.

Income

Earned Income Tax Credit – This is one of the most well-known refundable tax credits, and it is normally only accessible to poor or moderate-income households earning up to a little more than $70,000, depending on other criteria. The credit is equal to a fixed percentage of earnings beginning with the first dollar earned and increasing to the credit’s maximum. The maximum credit is paid until earnings reach a certain threshold, at which point it decreases with each successive dollar of income until no credit is available. Families with children receive far more credit than those without eligible children. Most of this credit is refundable.

Foreign Tax Credit – This is a non-refundable credit that lessens the double tax burden for taxpayers with income earned outside of the United States.

Child Tax Credit – It is possible to claim up to $2,200 for each child, with $1,700 refundable.  The child tax credit begins to phase down after income surpasses $200,000 ($400,000 for joint filers).

Child and Dependent Care – Approximately 20% to 50% of qualified care expenses—up to $3,000 for one person or $6,000 for two or more—incurred for a child under 13, a disabled spouse or parent, or another dependant can also be claimed as tax credits.  Like many other tax credits, this one is income-based.

Adoption Credit – This is a non-refundable tax credit for approved expenses up to a specific amount for each child adopted, whether through public foster care, domestic private adoption, or foreign adoption.

Education & Retirement

Saver’s Credit – The non-refundable credit encourages low and moderate-income taxpayers to make retirement contributions to qualified retirement accounts.  Depending on adjusted gross income, contributions to retirement accounts up to $2,000 ($4,000 if married filing jointly) can be credited at 50%, 30%, or 10%.  You must be at least 18, not a full-time student, and cannot be claimed as a dependent on someone else’s return.

American Opportunity Credit – Generally, qualified education expenditures are compensated for an eligible student during their first four years of higher school. The maximum annual credit is $2,500 per student. If the credit reduces tax liability to zero, 40% of the balance (up to $1,000) can be reimbursed.

Lifetime Learning Credit – Unlike the education tax credit immediately above it, this one can be applied to graduate school, undergraduate expenses, and professional or vocational courses. It can be up to $2,000 for qualified students, but it is completely nonrefundable.

Environmental

Residential Energy Credit – Residential properties that use solar, wind, geothermal, or fuel-cell technologies may qualify. However, the electricity generated from these sources must be consumed within the home.

Non-business Energy Property Credit – Equipment and materials that fulfil the Department of Energy’s technical efficiency standards can qualify. The first kind refers to any qualified energy efficiency upgrades, such as home insulation, external doors, exterior windows and skylights, and certain roofing materials.  The second kind is characterised as household energy property costs, which include electric heat pumps, air conditioning systems, biomass stoves, natural gas furnaces, and hot water boilers.

Alternative Minimum Tax (AMT)

The AMT is a necessary alternative to the regular income tax. The AMT amount is determined less the standard deduction. It also excludes most itemised deductions, including state and local income taxes, business expenses, mortgage interest, and property taxes. If a taxpayer earns more than the AMT exemption amount, they must pay the larger amount of either the AMT or the normal income tax. The AMT impacts many people in higher tax levels by eliminating various deductions. However, there are techniques to try and avoid paying the AMT:

Reduce your adjusted gross income by maxing out your contributions to retirement accounts like 401(k), IRA, or health savings accounts.

Reduce your itemised deductions.

Increase charitable gifts.

Generally, only taxpayers with adjusted gross incomes that exceed the exemption need be concerned about the AMT. The IRS provides an online AMT Assistant to help taxpayers determine whether they are subject to the AMT.