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Tax Day is on the horizon, and you may not be sure if you’ll be getting a refund … or if you’ll owe more federal tax instead.
Whether you owe Uncle Sam, or he owes you, depends on a number of factors, like your deductions, your income, and whether you paid enough tax on your earnings throughout 2018. Calculating your federal income tax obligation can be complicated. So the IRS makes it easier to understand the amount of tax you’re expected to pay by providing federal income tax tables.
Let’s take a look at what tax tables are, how they help make figuring your federal income tax easier and what you should know about how to read 2018 tax tables.
Calculating tax: Why’s it so difficult?
Federal income taxes are complicated.
There are thousands of forms and publications related to federal income taxes. The Tax Cuts and Jobs Act of 2017 — legislation meant to help simplify the federal tax code — is more than 500 pages long.
And the new shorter Form 1040 does manage to reduce the essential tax return to a single, double-sided page. But it does so by moving a lot of essential information off the original form and onto six new schedules that you may need to file along with the 1040.Is the new one-page 1040 really easier?
What’s more, tax calculations can seem downright arcane. They depend on far more than just knowing your tax bracket and rate. And a number of factors can influence your tax obligation — like your filing status, whether you take a standard deduction or itemize, adjustments to your income and more.
Tax preparation and filing services like Credit Karma Tax® can help you calculate your tax when you use them to prepare and file your taxes. But if you’d like to get a rough idea of how much tax you should have paid last year — and your taxable ordinary income was $100,000 or less — the 2018 federal income tax table is a good place to start. If your taxable income was $100,000 or more, you can check out the IRS tax computation worksheet.
What is a federal income tax table?
A tax table is basically a chart that shows how much tax you should pay based on your taxable income and filing status. The 2018 federal tax table starts on Page 67 of the Form 1040 instructions for the 2018 tax year.
It’s important to note that the tables use taxable income to predict your taxes, so you’ll need to do some calculations to figure out your taxable income before you can use the tax table effectively.What counts as taxable income?
Using the federal income tax table
The federal income tax table allows you to calculate how much tax you owe by using information about your filing status and taxable income (the income the IRS can tax after you make all the deductions and adjustments for which you qualify).
The IRS publishes a new tax table every year. Tax reform also led to several changes that affect the tax rate you pay and your final taxable income this year, including updates to tax brackets and a standard deduction that’s nearly double what it was for 2017.
Calculating your federal income tax
To use a tax table to determine your federal income tax, first you need to know your filing status and taxable income.
There are five filing statuses: single, married filing jointly, married filing separately, head of household and qualifying widow(er) with dependent child. The IRS has guidelines that determine what filing status you can use. For example, if you’re unmarried, divorced or legally separated, you may be able to file as a single person. If you’re unsure of your filing status, you can use the IRS Interactive Tax Assistant to determine your status.
Once you know your filing status, follow these steps.
- To determine your taxable income, you’ll need to know your adjusted gross income (or AGI), which is your gross income (all the income you receive in a year) minus adjustments. There are many possible adjustments you may qualify for. Examples include certain business expenses, contributions to health savings accounts, IRA contributions and student loan interest.
- Once you know your AGI, subtract your qualified business income deductions (if applicable) and determine whether you’ll take the standard deduction or itemize. Subtract these deductions and then you’ll get your taxable income.
- Next, find the tax bracket on the tables that corresponds to your income. The 2018 federal income tax table is divided into three vertical boxes on each page. For each box, the first two columns of numbers represent the range of taxable income that corresponds to each amount of tax.
- Then, find your filing status in the top row of the tax table.
- Finally, determine your tax. Where your income row and filing status meet, that’s your tax for 2018.
For example, if you and your spouse use the filing status of married filing jointly and your combined total taxable income is $95,040, your 2018 tax would be $12,785. A single filer with the same income would pay $17,096 in taxes. If you had at least this amount withheld from your paycheck or paid this amount in estimated taxes throughout the year, then you wouldn’t owe anything when you file your federal income tax return. If you paid more than this amount, you would probably get a refund.
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But there’s a catch …
Using the 2018 federal tax table to get an idea of your tax is fairly easy … but there’s a catch.
The IRS tax table is only for filers who have a taxable income of less than $100,000. If you make $100,000 or more, the IRS provides a tax-computation worksheet that you can use to calculate your tax. In the instructions for the 2018 1040, this worksheet is on Page 79.
If using the tax table or the worksheet is still too cumbersome, consider using an online tax calculator or a do-it-yourself tax-preparation and e-filing service like Credit Karma Tax®, which is always free.
Once you know your tax obligation and determine whether you’ll owe or get a refund, take several steps to ensure you’re in good financial shape.
If you’ll be facing a tax bill, plan ahead for how to cover your underpayment when taxes are due (usually on April 15 every year). If you expect a refund, consider how to use the money to achieve your overall financial goals, whether that means increasing your emergency fund, saving for a house or paying off student loan debt.Keep reading: Smart ways to use your income tax refund
Or you could begin planning for 2019 taxes. If you’ll owe, adjust your W-4 withholdings to increase the amount you withhold from your paycheck so that you’ll owe less, or get a refund, at tax time next year.
Filing your tax return shouldn’t come with unexpected surprises. With a few pieces of information, including your filing status and taxable income, you may be able to use the 2018 income tax table to be better prepared financially come Tax Day.