Each year, the IRS processes over 140 million refunds, states the Internal Revenue Service. Taxpayers receive refunds because they pay more to the government than what they actually owe. This occurs because your employer may have withheld more taxes than your status and exemptions require, or if you simply overestimated your tax liability. Certain tax credits that the IRS allows also reduce your tax liability. The IRS can mail a check to you or deposit your refund in your bank account.
Figure Filing Status and Exemptions
Choose your filing status to determine your tax rate and specific tax provisions. You can file as single, married filing jointly, married filing separately, head of household or qualifying widower with dependent children. Your filing status helps determine your standard deduction. If your filing status is married filing jointly, your standard deduction for the 2011 tax year is $11,600. You also must calculate your exemptions. You get one exemption for yourself and one for each of your dependents. Multiply the number of dependents by the exemption rate. The exemption rate for 2011 is $3,700. So if including yourself and your spouse, you have two exemptions, your exemption is $7,400.
Estimate Taxable Income
To estimate your taxable income, you will need to calculate your total income and determine your adjusted gross income. Your total income is equal to the sum your income from all sources, including wages, dividends, capital gains and business income. Now, calculate your adjusted gross income by subtracting your allowable expenses and deductions from your total income. Allowable expenses can include educator expenses, health savings account deductions, self-employed health deductions, student loan interest deductions and alimony paid. Subtract your total exemption and standardized deductions from your adjusted gross income to determine your taxable income. When you prepare your taxes, you may choose to itemize your deductions, but for now, the standard deduction suffices.
Calculate Total Tax
Look up your taxable income in the tax tables if your income is less than $100,000. Be careful when using the tax table, as it lists income ranges or brackets. If your income is more than $100,000, use the tax computation worksheets that follow the tax tables. Next, estimate your tax credits by summing amounts for foreign tax credit, credit for child and dependent-care expenses, child tax credits, education credits, retirement savings credits and residential energy credits. If your tax credits total more than the tax due from the tax tables, your tax amount at this point is zero. Continue adding all other applicable taxes. These can include self-employment taxes, unreported social security and Medicare tax, additional taxes on qualified retirement plans and household employment taxes, and first-time home-buyer credit repayments.
Calculate Your Refund
Sum all tax payments that you have already paid or expect to pay by the time you file your return. This includes estimated payments if you are self-employed and amounts included on 1099 forms. It also includes amounts your employer withholds throughout the year. If you qualify for the earned income credit, make sure you include an estimated amount for it. Compare your tax payments to your total tax. If your tax payments are more than your total tax, subtract your total tax from your tax payments to obtain your estimated refund amount. Conversely, if your total tax amount is greater than your tax payments, you owe more taxes and need to write a check to the federal government for the difference.
- Comstock Images/Comstock/Getty Images
- Tax Rate vs. Marginal Tax Rate
- How to Calculate Documentary Transfer Tax
- How to Calculate Remaining Estate Tax Exemption
- Penalties of Non-Payment of Property Tax
- How to Calculate a Salary After Taxes
- How to Calculate the Taxes on Overtime
- How to Calculate Tax Mill Rate
- How Are Taxes Calculated with an Early Withdrawal From a TSP?
- How to Calculate How Much You Get Back from Income Tax
- How Are Property Taxes Calculated in California?