These federal tax liabilities are estimates only. They are "good enough estimates," which is to say that while they will most likely be slightly wrong in each specific case, they will on average be correct for typical Americans. Error comes primarily from three sources:
If your itemized deduction total is greater than your standard deductions, we use your itemized deductions; otherwise we use your standard deduction.
How the calculator works:
- State taxes. State income and/or sales taxes are deductible from one's federal return. However, state tax liabilities vary from state to state. We use an average state tax rate of 4.82%, a value we got from here.
- Extra deductions and credits. We don't account for every single possible deduction or credit. We account for only the deductions listed on the calculator, but you have the option to add in as much in additional deductions as you please. We only account for the child tax credit and earned income tax credit (however, the EITC calculations treat everyone as if they were single -- this underestimates the tax credit). In reality, a more rigorous tax return is likely to have an even lower tax liability.
- Investment income. Romney gets away with paying 13% in taxes because his income is primarily investment income, and is therefore taxed at the 15% capital gains tax rate. So while this calculator will give you a close estimate of your federal liability if you are an ordinary person, it will be wildly inaccurate for investors.
- It takes your household income and calculates your taxable income on the basis of your filing status using the following deductions:
- Tuition. Deducts tuition you paid up to $160,000. Source.
- Medical costs. Deducts medical costs for every dollar that exceeds 7.5% of income. Source.
- Property tax and interest on mortgage payments. For single people, deduct up to $50,000 and adjust deduction downward by 10% for every $1,000 over $50,000; for married couples, up to $100,000 and adjust deduction downward by 10% for every $1,000 over $100,000. Source.
- Charitable contributions. Deduct contributions up to 50% of adjusted gross income. Source.
- Job-related expenses. Deducts costs associated with getting a job after $600 and exceeding 2% of adjusted gross income. Source.
- Disaster, casualty, and theft-related expenses. Deducts costs associated with casualties and thefts exceeding 10% of adjusted gross income and $100 per theft. Source.
- Union dues. Deducts costs associated with casualties and thefts exceeding 2% of adjusted gross income. Source.
- Tax-preparation fees. Deducts costs associated with preparing taxes after 2% of adjusted gross income and over $1000 in costs. Source.
- Dependents deduction. $3,800 for each dependent. Source.
- Standard deduction. $5,950 for single folks, $11,900 for joint-filers, $5,950 for those filing separately, and $8,700 for those filing as a head of household. This is used instead of the above deductions if it amounts to a larger deduction. Source.
- Personal exemption. $3,800 exemption for each spouse/filer. Source.
It calculates your federal taxes owed using the federal marginal tax rates on the basis of your taxable income. Source.
It subtracts tax credits from your federal taxes owed:
If you really want to know how much federal tax you pay, check your tax return. That's the only way to be sure what you owe. I am not a tax attorney, but a graduate student/web developer who did some research. I am open to making corrections. Email me corrections at firstname.lastname@example.org
- Child tax credit. For single people making less than $75,000 a year and married couples making less than $110,000 a year, a $1,000 credit is given for every child (the calculator assumes the children are claimed as dependents and are less than 17 years old). Source.
- Earned Income Tax Credit. Provides Earned Income Tax Credit for families earning the minimum amount but less than the phase out amount. These values are calculated as if everyone were single, using the 2012 parameters from this document. As a result, EITC values will be underestimated for married couples. To get your precise EITC value, use this 2011 chart. The 2012 chart is forthcoming. Source.